US economy grows 2.8% in Q3, imports weigh

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The US economy grew more slowly than initially thought in the third quarter, held back by strong imports and weak investment in nonresidential structures, according to data on Tuesday that hinted at a lackluster recovery.

In its second reading of third-quarter gross domestic product, the Commerce Department said the economy grew at a 2.8% annual rate, rather than the 3.5% pace it estimated last month.

It was still the fastest pace since the third quarter of 2007. The return to growth after four straight quarters of decline in output probably ended the most painful U.S. recession in 70 years. The economy contracted at a 0.7% rate in the April-June period.

The growth pace in GDP, which measures total goods and services output within US borders, was a touch below market expectations for a 2.9% rate.

Surging imports, which outpaced the growth in exports, restrained the economic growth rate in the third quarter. Imports jumped 20.8%, the biggest gain since the second quarter of 1985, instead of 16.4%. They knocked 2.53%age points off real GDP, the department said.

Another drag on GDP came from the construction of nonresidential structures, which dropped 15.1% in the last quarter rather than 9.0%, highlighting the problems in the commercial property market. That shaved just over half a%age point off GDP.

Businesses reduced accumulated stocks of unsold goods in the last quarter at a slightly faster rate than had been anticipated. Business inventories fell $133.4 billion rather than the $130.8 billion the government estimated in October.

The decline was still a slowdown from the record $160.2 billion plunge in the second quarter. The change in inventories added 0.87%age points to real GDP in the third quarter.

Excluding inventories, GDP rose at a 1.9% rate instead of 2.5%. Final sales increased at a 0.7% pace in the second quarter.

The GDP report also showed after tax corporate profits grew 13.4% in the third quarter, the largest gain since the first quarter of 2004. It was faster than market expectations for 6.2%. The strong profit growth was largely a reflection of deeper cost-cutting by companies, mostly headcount reduction, to deal with insipid demand.

Consumer spending was not as robust as the government had estimated last month, the report showed.

Consumer spending, which normally accounts for more than two-thirds of U.S. economic activity, rose at a 2.9% rate instead of the 3.4% pace reported by the government last month. It was still the biggest rise since the first quarter of 2007. Spending fell at a 0.9% rate in the second quarter.

Home building activity rose at a 19.5% rate in the third quarter, below previous estimates of 23.4%. Home construction still contributed to GDP for the first time since 2005. Residential investment declined 23.3% in the April-June period.

Consumer spending and residential investment were supported by government stimulus programs.