US Grows Faster Than Initially Expected as Economy Kicks into Higher Gear

The world's largest economy grew at a faster pace than initially calculated in the third quarter, reflecting strong economic fundamentals in the country, despite a weak outlook for the global economy.

Gross domestic product (GDP) for the US increased at an annual rate of 3.9% in the third quarter, compared to the initial estimate of 3.5%, according to the Commerce Department.

Nevertheless, the rate of growth was lower than 4.6% registered in the second quarter.

The upward revision of growth was primarily due to higher than expected increases in business and consumer spending, as well as to inventories.

Personal consumption, which accounts for about 70% of the US economy, grew 2.2% in the third quarter, compared with an increase of 1.8% reported earlier. Domestic demand was raised to a 3.2% pace from the previously reported 2.7% rate.

Business spending on equipment was raised to a 10.7% rate from a 7.2% reported earlier.

There was also stronger inventory accumulation of $79.1bn (€63.6bn, £50.4bn), compared with $62.8bn inventory accumulation in the first estimate.

"The US economy continues to generate critical mass that will support solid growth along the path to the normalization of the economy. The economy is still not firing on all cylinders but has kicked into a higher gear," said Ward McCarthy, economist at Jefferies.

The US authorities have responded well to the 2008 financial crisis and have been able to put the economy back in growth track. Growth has averaged 2.9% over the prior five quarters, including the 2.1% decline in the first quarter.

Growth has also been 3.5% or higher in four of the prior five quarters, and has averaged 4.3% since the 2.1% decline in the first quarter.

The better growth rates come as other major economies in the world are still struggling. While Japan fell into recession, China is experiencing a growth slowdown and eurozone is facing an anaemic recovery.

"[The] economy continues to do better and has been able to overcome a variety of obstacles from Washington, geopolitical distress and weak global growth," McCarthy added.

"We think that growth will continue to be solid going forward with the US economy finally reaching the promised land of "normalization" by the end of 2015."