Growth Revised Down to 2% for 3Q

The U.S. economy grew at a slightly slower pace than previously estimated in the third quarter, but output is expected to pick up in the fourth quarter based on weak inventory accumulation amid sturdy consumer spending.

Gross domestic product grew at a 2.0 percent annual rate in the third quarter, the Commerce Department said in its second estimate on Tuesday, down from the previously estimated 2.5 percent.

While the revision was below economists' expectations for a 2.5 percent growth pace, the composition of the GDP report, especially still-firm consumer spending and the first drop in businesses inventories since the fourth quarter of 2009 set the platform for a stronger economic performance this quarter.

Data so far suggest the fourth-quarter growth pace could exceed 3 percent, which would be the fastest in 18 months.

Despite the downward revision, last quarter's growth is still a step-up from the April-June period's 1.3 percent pace. Part of the pick-up in output during the last quarter reflects a reversal of factors that held back growth earlier in the year.

A jump in gasoline prices had weighed on consumer spending earlier in the year, and supply disruptions from Japan's big earthquake and tsunami in March had curbed auto production.

The government revised third-quarter output to account for an $8.5 billion drop in business inventories, which lopped off 1.55 percentage points from GDP growth. Inventories had previously been estimated to have increased $5.4 billion.

The drag from inventories was offset by strong export growth. Excluding inventories, the economy grew at an unrevised brisk 3.6 percent pace after expanding 1.6 percent in the second quarter.

Consumer spending was revised slightly down to a 2.3 percent growth pace from 2.4 percent because of adjustments to motor vehicle fuels and lubricants. It was still the quickest pace since the fourth quarter of 2010. However, weak income growth could crimp spending. The report showed real disposable income fell 2.1 percent in the third quarter after declining 0.5 percent in the prior three months.

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