3rd-Quarter Growth Rate Is Revised Up, to 3.9%


The nation’s economic output grew at an even faster rate during July, August and September than the government initially estimated, giving the economy its strongest six-month performance in more than a decade.


The intense focus on the coming shopping frenzy as the holiday period begins this week almost made interest in the economy’s third-quarter performance seem like an exercise in nostalgia.

But the Commerce Department’s release on Tuesday of its revised estimate of gross domestic product the broadest measure of goods and services produced across the nation showed that consumers had already stepped up their pace of purchasing.

The shift in the annual rate of growth to 3.9 percent from 3.5 percent was mainly because of a bigger-than-expected jump in consumer spending, bolstered by a modest increase in reported business investment.

“The upward revision was almost exclusively due to much stronger buying by consumers,” said Carl R. Tannenbaum, chief economist at the Northern Trust Company. “I find that very encouraging coming into the commercial side of the holiday seasons.”

While the economic recovery, now into its sixth year, has been lackluster, Mr. Tannenbaum noted that in four of the last five quarters, “growth has moved to a much stronger level.”

This 3.9 percent growth rate comes on the heels of a 4.6 percent jump inG.D.P. during the second quarter, after a freezing winter that helped cause the nation’s output to drop at a rate of 2.1 percent in the first three months of the year.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, agreed that “the trend has shifted higher,” although he said he doubted that G.D.P. growth could be sustained at the third quarter’s nearly 4 percent pace.

Falling gasoline prices, which left Americans with more cash for other purchases, partly explain why people could spend more, economists agree.

The G.D.P. figures made the drop in the Conference Board’s latest measure of consumer confidence to 88.7 in November from 94.1 in October all the more of an anomaly. Other surveys, including the Rasmussen index, have shown confidence surging.

Consumer spending is a closely watched figure because it accounts for 70 percent of economic activity and must advance at a steady rate to power the economy forward.

But it is business investment, including the rise and fall of inventory accumulation, that most influences economic turning points. Nonresidential investments grew by 7.1 percent, while investment in equipment reached 10.7 percent.

“The thing I was most encouraged by was the pickup in business investment spending,” said Jerry Webman, chief economist at Oppenheimer Funds, “That says business confidence is building, and that we should expect to see hiring continue.”

Government spending, which grew at a 4.2 percent pace, turned out not to be quite as substantial as the Commerce Department initially estimated.

The economy’s growth has steadily reduced the unemployment rate. Last month, the official rate hit 5.8 percent, a drop of 1.4 percentage points from a year earlier. Employers have added more than 200,000 jobs for nine months in a row, according to Labor Department figures.

And signs are growing that the quality of jobs is improving. A report released on Monday by Julie Hotchkiss, a research economist and senior policy adviser at the Federal Reserve Bank of Atlanta, disputed claims that many of the newly created jobs were part-time positions.

“Of the additional 8.2 million people employed since October 2010, 7.8 million (95 percent) are employed full time,” she wrote.

But the job market is still far from fully employing millions of Americans who want to work, one of the main reasons wages have stagnated, barely keeping up with the persistently low rate of inflation.

In addition, the housing sector is well below historical standards. Residential housing investment was up 2.7 percent, according to the revised G.D.P. figures.

At the same time, the Case-Shiller Home Price Index of 20 major cities, released on Tuesday by Standard & Poor’s, rose at a seasonally adjusted annual rate of 4.8 percent in September, a sharp slowdown from the double-digit pace prices were rising earlier this year.

“The overall trend in home price increases continues to slow down,” David M. Blitzer, chairman of the index committee at S&P Dow Jones Indices, said in a statement. “The Northeast region reported its first negative monthly returns since December 2013.”

“The only region showing any sustained strength is the Southeast led by Florida; price gains are also evident in Atlanta and Charlotte,” he added.

The Federal Reserve Bank of New York, in a study on household debt and credit, also found that new and refinanced mortgage loans hit their lowest level since 2000, largely because of a bump in interest rates last year.

Still, the American economy is one of the few bright spots in the global economy. In recent weeks, Japan’s central bank and Europe’s have moved to nudge their sagging economies forward by lowering interest rates.

In the United States, the latest G.D.P. figures have given economists one more reason to believe that the Federal Reserve will start moving in the opposite direction next year.

As Mr. Tannenbaum said, Tuesday’s report — the second of three increasingly refined measures the government issues on quarterly economic activity — may “bring forward the day where the Fed can think about normalizing interest rates.”


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