The U.S. economy grew faster than initially thought in the third quarter, notching its best performance in two years, buoyed by strong consumer spending and a surge in soybean exports.
Gross domestic product increased at a 3.2 percent annual rate instead of the previously reported 2.9 percent pace, the Commerce Department said in its second GDP estimate on Tuesday. Growth was the strongest since the third quarter of 2014 and followed the second quarter's anemic 1.4 percent pace.
Growth was also lifted by upward revisions to business investment in structures and home building, underscoring the economy's solid fundamentals that further bolster the case for the Federal Reserve to raise interest rates next month.
Data ranging from housing to retail sales and manufacturing suggest the economy retained its momentum early in the fourth quarter even as exports appear to be faltering against the backdrop of renewed dollar strength and a fading soybean boost.
Fastest Increase Since Early 2014
When measured from the income side, the economy grew at a 5.2 percent clip amid a rebound in corporate profits and rising household incomes. That was the fastest pace of increase in gross domestic income since the second quarter of 2014 and followed a 0.7 percent rate of increase in the second quarter.
The third-quarter revision also showed a much more favorable growth profile for the economy. The boost from inventories was not as big as previously estimated, which suggests that businesses are not sitting on piles of unwanted goods.
This means they will have more scope to place new orders, which augurs well for economic growth in the coming quarters. The sharp acceleration in GDP in the last quarter should quash any lingering fears that the economy was at risk of stalling after growth averaged just 1.1 percent in the first half.
That, together with a labor market that is near full employment and steadily rising inflation, could leave the Fed comfortable to hike interest rates at its December 13-14 policy meeting.
The Commerce Department said consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased at a 2.8 percent rate in the third quarter and not the 2.1 percent pace reported last month. That was still a slowdown from the second quarter's robust 4.3 percent pace.