The US economy grew faster than previously estimated in the third quarter, but still not enough to reduce stubbornly high unemployment and lift very low inflation.
Gross domestic product growth was revised up to an annual rate of 2.5 per cent from 2 per cent as spending and exports were stronger than initially thought, the Commerce Department said in its second estimate today.
Optimism over the acceleration in growth, which was touch above economists' forecasts for a 2.4 per cent pace, was dampened somewhat by news of a bigger-than-expected drop in sales of previously owned homes in October.
Concerns about the slow growth pace and low inflation spurred the Federal Reserve early this month to ease monetary policy further through controversial purchases of $600 billion worth of government bonds, also known as quantitative easing, to drive ultra low interest rates even lower.
There are signs economic activity picked up mildly as the fourth quarter started, but growth will likely remain below the 3.5 per cent rate that economists say is needed to appreciably reduce a 9.6 per cent unemployment rate.
GDP growth, which measures total goods and services output within US borders, increased at a 1.7 per cent rate in the second quarter.
US financial markets were little moved by the data as investors kept a wary eye on the rising tensions on the Korean peninsula. Stocks on Wall Street fell, with all three indices down more than 1 per cent in morning trade.
Prices for US Treasury debt were higher, while the dollar rose against the euro.
Sales of existing US homes fell 2.2 per cent to a seasonally adjusted 4.43 million unit rate in October, worse than economists' expectations for a 1 per cent drop.
Housing remains one of the weak spots in the economy as it recovers from the worst recession since the 1930s. The Fed is expected to cut growth forecasts for this year through 2012 when it releases minutes of its November 2nd meeting later today.
The government revised third-quarter growth to reflect sturdy consumer, government and business spending. Consumer spending, which accounts for more than two-thirds of US economic activity, grew at a 2.8 per cent rate in the July-September period instead of 2.6 per cent.
It was still the fastest pace since the fourth quarter of 2006 and was an acceleration from the second quarter's 2.2 per cent pace. Government spending increased at a 4 per cent rate rather than 3.4 per cent, due to an upward revision in state and local expenditures.
Business investment was a touch higher than initially estimated, lifted by much stronger spending on equipment and software, though investment in structures was weak. Business spending increased at a 10.3 per cent rate instead of 9.7 per cent.
That was still a step down from the second quarter's brisk 17.2 per cent rate. Spending on software and equipment grew at a 16.8 per cent rate instead of 12 per cent.
The contribution from business inventories was surprisingly smaller than initially estimated, the report showed. Business inventories increased $111.5 billion, instead of $115.5 billion in last month's estimate, adding 1.3 percentage points to third-quarter GDP.
Excluding inventories, the economy expanded at a 1.2 per cent pace rather than 0.6 per cent.
Revisions to third-quarter GDP growth also reflected import growth that was not as robust as initially thought, while exports were a bit stronger. That created a trade deficit that sliced 1.76 percentage points from GDP growth instead of 2.01 percentage points.
Investment in home building was a drag on growth, contracting at a 27.5 per cent rate, a touch less than the 29.1 per cent decline reported last month.
The GDP report also showed after tax corporate profits rose 1 per cent in the third quarter after growing 3.9 per cent in the April-June period. The increase in third-quarter profits was below economists' expectations for 3.6 per cent.
The report also showed no inflation pressures in the economy. The Fed's preferred inflation measure, the personal consumption expenditures price index, excluding food and energy, rose at an unrevised annual rate of 0.8 per cent.
That was the smallest increase since the fourth quarter of 2008 and the second-lowest reading since the fourth quarter of 1962.
Reuters