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US third-quarter growth revised up to 3.6%

Washington: The US economy grew faster than initially estimated in the third quarter as businesses aggressively accumulated stock, but underlying domestic demand remained sluggish and buoyed the case for the Federal Reserve to keep up its stimulus for now.

Gross domestic product grew at a 3.6 percent annual rate instead of the 2.8 percent pace reported earlier, the Commerce Department said on Thursday. Economists polled by Reuters had expected output would be revised up to only a 3.0 percent rate.

The third-quarter growth pace was the fastest since the first quarter of 2012 and marked an acceleration from the April-June period’s 2.5 percent rate, although economists expect slower growth in the final months of the year.

Businesses accumulated $116.5 billion worth of inventories, the largest increase since the first quarter of 1998. That compared to prior estimates of only $86 billion.

Inventories accounted for a massive 1.68 percentage points of the advance made in the July-September quarter, the largest contribution since the fourth quarter of 2011.

The contribution from inventories had previously been estimated at 0.8 percentage point. Stripping out inventories, the economy grew at a 1.9 percent rate rather than the 2.0 percent pace estimated last month.

The strong inventory accumulation in the face of a slowdown in domestic demand means businesses will need to draw down on stocks, which will weigh on GDP growth this quarter.

“It does pose risks to the current quarter which could reverse from this big rise in the third quarter,” said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.

Fourth quarter growth estimates are already on the low side, with a 16-day shutdown of the government in October expected to shave off as much as half a percentage point from GDP.

Meanwhile the number of Americans filing new claims for unemployment benefits unexpectedly fell last week, a hopeful sign for the labour market recovery. Initial claims for state unemployment benefits dropped 23,000 to a seasonally adjusted 298,000, declining for a third straight week, the Labor Department said on Thursday. Claims for the prior week were revised to show 5,000 more applications received than previously reported.