Economy beats predictions for quarter

The American economy turned in a better performance last quarter than first thought, expanding at a 2.1 percent rate, the government said Tuesday.

Nearly all the improvement was because of revised data on inventories, which showed businesses restocking shelves at a faster pace than the government first estimated. The improvement in inventory levels was offset by a slight downward revision in consumer spending last quarter.

Although well below the 3.9 percent pace of growth recorded in the spring, the economy’s advance was better than the initial 1.5 percent rate for the third quarter that the Commerce Department reported last month.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said the new data show the government “hugely underestimated” how much retailers and wholesalers did to restock their shelves in September.

He forecast that fourth-quarter growth would be 3 percent, a bit lower than he earlier had expected, because the inventory revision means businesses would not have to do as much catching up at the end of the year.

Consumer spending in the third quarter was solid, growing at a 3 percent annual rate, which was revised down 0.2 percentage points from the initial estimate.

And a measure of business investment was revised up to 2.4 percent after increasing 4.1 percent in the second quarter.

Following a very weak first quarter, the economy is on pace for annual growth this year of about 2.4 percent. That would be the same as last year.

One mildly downbeat note Tuesday was an unexpected drop in consumer sentiment this month, with the Conference Board reporting that its index for consumer confidence fell to 90.4 from 99.1 in October. Despite a strong advance in hiring last month, consumers expressed more caution about the job market and future economic conditions in the most recent survey.

Consumer attitudes in the United States should rebound.

“U.S. consumers are cash-rich and increasingly secure in their jobs,” said Shepherdson. “Confidence won’t remain at the soft November level.”

Nothing in the latest data is expected to derail plans by Federal Reserve policymakers to raise their benchmark interest rate at their meeting next month. The Fed’s key lever for influencing the economy has been stuck at close to zero since December 2008.

With the unemployment rate falling to 5 percent in October and employers bolstering payrolls by 271,000, many analysts believe Fed officials are likely to conclude when they meet next month that the economy is strong enough to handle the first increase in interest rates in nearly a decade.

This story was originally published November 24, 2015 at 4:51 PM with the headline "Economy beats predictions for quarter."