(Adds market reaction, details)
* Third-quarter GDP growth revised up to 3.2 percent rate
* Consumer spending growth revised sharply higher to 2.8
* Inventory investment lowered to $7.6 billion
* House prices up 5.5 percent in Sept year
By Lucia Mutikani
WASHINGTON, Nov 29 The U.S. economy grew faster
than initially estimated in the third quarter, notching its best
performance in two years, buoyed by strong consumer spending and
a surge in soybean exports.
In a separate report, U.S. home prices rose 5.5 percent in
the year to September, meaning house prices overall have now
fully recovered from their plunge during the 2008 financial
A third report showed U.S. consumer confidence rebounded in
November to its highest level in nine years despite uncertainty
surrounding the policies of President-elect Trump.
U.S. stock prices edged higher on Tuesday after the data,
with the benchmark S&P 500 index now up about 6.0 percent
since the Nov. 8 elections. U.S. Treasury yields ended slightly
lower on Tuesday but the benchmark ten year note
yield has risen about 0.5 percent in the past two weeks, helping
to push the U.S. dollar up to its highest levels in more than a
decade against major currencies.
U.S. ECONOMIC GROWTH FASTEST SINCE 2014
U.S. 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. Economists had forecast third-quarter GDP growth being
revised up to a 3.0 percent rate.
Growth was the strongest since the third quarter of 2014 and
followed the second quarter's anemic 1.4 percent pace. Output
was lifted by upward revisions to business investment and home
Exports grew at their quickest pace since the fourth quarter
of 2013, driven by a surge in soybean exports after a poor soy
harvest in Argentina and Brazil. International trade contributed
0.87 percentage point to GDP growth and not 0.83 percentage
point as reported last month.
Data ranging from housing to retail sales and manufacturing
output also suggest the economy retained its momentum early in
the fourth quarter even as exports appear to be faltering amid a
reversal of the boost to growth provided by soybean exports in
the third quarter.
The Atlanta Fed is currently forecasting GDP rising at a 3.6
percent rate in the fourth quarter, supporting market
expectations that the Federal Reserve will raise interest rates
Economic growth could also be supported next year if
President-elect Donald Trump succeeds in pushing through
Congress a fiscal stimulus plan that includes massive
infrastructure spending and tax cuts, analysts said.
"Couple that with an increasingly enthusiastic consumer
supported by stronger wage gains and the economy appears
well-positioned to remain on a growth path heading into 2017,"
said Jim Baird, chief investment officer at Plante Moran
Financial Advisors in Kalamazoo, Michigan.
When measured from the income side (GDI), the economy grew
at a 5.2 percent clip amid a rebound in corporate profits. That
was the fastest pace of increase in gross domestic income in
nearly two years and followed a 0.7 percent rate of expansion in
the second quarter.
The average of GDP and GDI, which economists consider to be
a more accurate measure of current economic growth and a better
predictor of future output, increased at a 4.2 percent rate in
the third quarter, the fastest pace in two years.
That followed a 1.1 percent rate of increase in the second
quarter and likely exaggerates the economy's strength.
CONSUMER SPENDING AND CONFIDENCE UP
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.
With a tight labor market lifting wage growth and boosting
household sentiment, consumer spending is likely to gain further
momentum for the rest of the year and in 2017.
A separate report from the Conference Board showed its
consumer confidence index surged in November, climbing back to
levels seen before the 2008 recession. Consumers were upbeat
about the labor market and current business conditions.
Rising house prices are also likely to keep consumption
supported. The Standard & Poor's CoreLogic Case-Shiller national
home price index rose 5.5 percent in the year to September and
is now just above the peak seen in July 2006.
BUSINESS SPENDING MIXED
Spending on non-residential structures, which include oil
and gas wells, was revised sharply higher to show it increasing
at its fastest pace since the first quarter of 2014.
Business spending on equipment, however, fell at a steeper
rate than previously reported, declining for a fourth straight
quarter. With after-tax corporate profits rising at a 7.6
percent pace last quarter there is scope for business investment
to rebound. Corporate profits declined at a 1.9 percent rate in
the second quarter.
"The return to positive growth in corporate profits at least
satisfies what is probably a necessary, but not sufficient,
condition for a rebound in business fixed investment," said
Andrew Hollenhorst an economist at Citigroup in New York.
Businesses increased spending to restock after running down
inventories in the second quarter, but just not as much as
previously reported. Businesses accumulated inventories at a
$7.6 billion rate in the last quarter, almost half of the $12.6
billion pace reported last month.
That means inventory accumulation contributed 0.49
percentage point to GDP growth and not the 0.61 percentage point
reported last month.
The third-quarter revision showed a much more favorable
growth profile for the economy, analysts said. The boost from
inventories was not as big as previously estimated, which
suggests that businesses are not sitting on piles of unwanted
This means businesses 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
That together with a labor market that is near full
employment and slowly rising inflation could leave the Fed
comfortable with raising hike interest rates at its Dec. 13-14
policy meeting. The U.S. central bank raised its overnight
benchmark interest rate last December for the first time in
nearly a decade.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci and Clive