The U.S. economy surged ahead at a much faster pace than previously thought in the third quarter as companies struggled to keep pace with the unrelenting increase in consumer spending, the government reported Wednesday.
Gross domestic product, the broadest measure of activity, rose at a steep 5.5 percent annual rate in the July-September period–far above the Commerce Department’s 4.8 percent estimate released a month ago.
“This economy is growing gangbusters and 1999 is going out with a bang,” said Wayne Ayers, chief economist at Fleetboston Financial in Boston.
The report hurt inflation-sensitive bond prices, as some investors fretted whether it could heighten the chances of yet another increase in key U.S. interest rates. But the reaction was muted in thin trading ahead of Thursday’s Thanksgiving holiday, when U.S. financial markets will be closed.
The report exceeded economists’ expectations for a 5.0 percent annual rate of GDP growth. The third-quarter growth spurt followed a more modest 1.9 percent rate in the second quarter and was the strongest gain since a 5.9 percent surge in the final three months of last year.
Despite such strong economic growth, the report said prices remained muted for now, only registering an annual 1.1 percent increase in the implicit price deflator, a key inflation measure.
The government said the upward revision in overall growth primarily had been caused by larger-than-estimated increases in corporate inventories as companies stocked up to meet brisk consumer demand, the main engine behind the now almost 9-year old U.S. economic expansion.
Consumer spending, which accounts for some two-thirds of the overall U.S. economy, rose by 4.6 percent. The report showed inventories rising by $33.9 billion in the quarter, more than the originally reported $28.1 billion.
The report also included a steep downward revision in imports, which the report said grew 14.6 percent in the quarter instead of the 17.2 percent increase previously estimated.
“This was a strong number, and what’s impressive about it is it pretty much shows strength across the board,” Ayers said. “Fundamental demand in the economy, at least in the third quarter, remains very strong. It’s not just a question of inventory building.”
The economy’s growth extravaganza was accompanied by a strong increase in corporate profits. Driven by a sharp gain in overseas earnings–helped by improving economies abroad– third-quarter profits after taxes rose 3 percent, to an annual rate of $598.6 billion, the Commerce Department said.
Separately, the Labor Department reported new claims for unemployment benefits dropped last week, suggesting the labor market remained extremely tight. Jobless claims fell 13,000, to 274,000, sending the measure to its lowest point since mid-September.
The Labor Department said the less-volatile four-week moving average of claims dropped by 1,250, to 286,250.
Meanwhile, consumer sentiment retrenched slightly in November from its sharp midmonth rise but remained higher than October’s levels, indicating that a slowdown in spending for the U.S. consumer has yet to materialize, according to the University of Michigan’s monthly report, issued Wednesday.
Another economic indicator, the volume of help-wanted advertising in major U.S. newspapers, rose in October from the two-year low reached in September, the Conference Board reported Wednesday.
The business-financed research organization said its index of help-wanted ads reached 86 in October, up from 83 in September and 85 a year earlier. The index is used as a gauge of changes in job supply.
