The U.S. 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% from 2.0% as spending and exports were stronger than initially thought, the Commerce Department said in its second estimate on Tuesday.
Optimism over the acceleration in growth, which was touch above economists' forecasts for a 2.4% pace, was dampened somewhat by news of a bigger-than-expected drop in sales of previously owned homes in October.
"It's a step in the right direction, but it's not strong enough to make a dent in the unemployment rate," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania. "It supports the Fed's decision to resume quantitative easing."
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% rate that economists say is needed to appreciably reduce a 9.6% unemployment rate.
GDP growth, which measures total goods and services output within U.S. borders, increased at a 1.7% rate in the second quarter.
U.S. 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 1.0% in morning trade.
Prices for U.S. Treasury debt were higher, while the dollar rose against the euro.
Sales of existing U.S. homes fell 2.2% to a seasonally adjusted 4.43 mln unit rate in October, worse than economists' expectations for a 1.0% drop.
HOUSING A WEAK SPOT
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 2-3 meeting later on Tuesday.
The government revised third-quarter growth to reflect sturdy consumer, government and business spending. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, grew at a 2.8% rate in the July-September period instead of 2.6%.
It was still the fastest pace since the fourth quarter of 2006 and was an acceleration from the second quarter's 2.2% pace. Government spending increased at a 4.0% rate rather than 3.4%, due to an upward revision in state and local expenditures.
"The rise in consumption suggests that household spending may be starting to gain some traction," said Paul Dales, a U.S. economist at Capital Economics in Toronto.
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% rate instead of 9.7%.
That was still a step down from the second quarter's brisk 17.2% rate. Spending on software and equipment grew at a 16.8% rate instead of 12.0%.
The contribution from business inventories was surprisingly smaller than initially estimated, the report showed. Business inventories increased $111.5 bln, instead of $115.5 bln in last month's estimate, adding 1.3 percentage points to third-quarter GDP.
Excluding inventories, the economy expanded at a 1.2% pace rather than 0.6%.
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% rate, a touch less than the 29.1% decline reported last month.
The GDP report also showed after tax corporate profits rose 1.0% in the third quarter after growing 3.9% in the April-June period. The increase in third-quarter profits was below economists' expectations for 3.6%.
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% .
That was the smallest increase since the fourth quarter of 2008 and the second-lowest reading since the fourth quarter of 1962.
