Third Quarter Growth Revised Sharply Up

The U.S. economy grew from July through September at a much faster annual pace than thought, 3.6 percent, the Commerce Department said Thursday.

The Bureau of Economic Analysis had said in its second estimate of third-quarter growth that the economy grew at an annualized rate of 2.8 percent, so the much stronger second


suggested the economy had strength going into the home stretch of 2013.

"The acceleration in real GDP growth in the third quarter primarily reflected an acceleration in

private inventory investment, a deceleration in imports, and an acceleration in state and local

government spending that were partly offset by decelerations in exports ... and in nonresidential fixed investment," the BEA said.

Mainstream economists had expected a revision in the ballpark of 3.1 percent for the quarter, so Thursday's news was a pleasant surprise.

On top the improvement on the reading of gross domestic product, the broadest measure of U.S. trade in goods and services, Thursday also brought good news on the jobs front. The weekly reading of first-time claims for unemployment insurance fell to 298,000, bringing the four-week average to 322,000. That points to a labor market healing at a firmer pace, and bodes well for the November jobs report due from the Labor Department on Friday.

"We think this GDP report (as well as the decline in initial claims) adds to the case that the Fed will announce a reduction of bond purchases at the December ... meeting," wrote economists at RDQ Economics in New York, in a note to investors.

The Fed has been purchasing $85 billion a month in mortgage and government bonds since December 2012 in a bid to support a sluggish U.S. recovery. Economists had expected the Fed to pull back on the accelerator in March, but the stronger economic data of late may give the Fed room to begin tapering off purchases when it holds a final two-day meeting on Dec. 17-18.