The U.S. economy grew more slowly than previously estimated in the third quarter, but weak inventory accumulation amid sturdy consumer spending supported views output would pick up in the current quarter.
Gross domestic product grew at a 2.0 percent annual rate in the July-September quarter, the Commerce Department said in its second estimate on Tuesday, down from the previously reported 2.5 percent.
While the revision was below economists' expectations for a 2.5 percent growth pace, the composition of the GDP report, especially still-firm consumer spending and the first drop in businesses inventories since the fourth quarter of 2009 set the platform for a stronger economic performance this quarter.
``The mix or composition of growth improved. Inventory investment was lower so firms are more likely to produce more goods going forward. And exports rose,'' said Cary Leahey, a senior economist at Decision Economics in New York.
``So while you lost a half percentage point in the revision to third-quarter growth, you might easily get it back in the fourth quarter of this year or the first quarter of next.''
Data so far suggest the fourth-quarter growth pace could exceed 3 percent, which would be the fastest in 18 months.
DEBT DEBACLES A DRAG
But the outlook for next year has been clouded somewhat by the so-called super committee's failure to agree on a package of at least $1.2 trillion in deficit reduction over 10 years.
Monday's congressional failure has raised the risk a payroll tax holiday and emergency unemployment benefits will not be extended when they expire next month. That fiscal drag, together with the festering European debt crisis, could undermine consumer spending early next year.
Long-dated U.S. Treasuries weakened slightly after the GDP report, while stock index futures extended losses. The dollar was little changed, hovering near a 6-week high against a basket of currencies.
Despite the downward revision, last quarter's growth is still a step-up from the April-June period's 1.3 percent pace. Part of the pick-up in output during the last quarter reflects a reversal of factors that held back growth earlier in the year.
A jump in gasoline prices had weighed on consumer spending earlier in the year, and supply disruptions from Japan's big earthquake and tsunami in March had curbed auto production.
The government revised third-quarter output to account for an $8.5 billion drop in business inventories, which lopped off 1.55 percentage points from GDP growth. Inventories had previously been estimated to have increased $5.4 billion.
The drag from inventories was offset by strong export growth. Excluding inventories, the economy grew at an unrevised brisk 3.6 percent pace after expanding 1.6 percent in the second quarter.
Consumer spending was revised slightly down to a 2.3 percent growth pace from 2.4 percent because of adjustments to motor vehicle fuels and lubricants. It was still the quickest pace since the fourth quarter of 2010.
However, weak income growth could crimp spending. The report showed real disposable income fell 2.1 percent in the third quarter after declining 0.5 percent in the prior three months.
``The market knows the fourth quarter doesn't look bad, but there is a considerable amount of fiscal drag coming in the near future,'' Leahey said.
There were revisions to business investment, which rose at a 14.8 percent rate instead of 16.3 percent as estimates for investment in nonresidential structures and outlays on equipment and software were lowered.
The Department also said after-tax corporate profits increased at a 3.0 percent rate after rising 4.3 percent in the second quarter.
Export growth was stronger than previously estimated, rising at a 4.3 percent rate instead of 4.0 percent. Imports increased at a much slower 0.5 percent rate rather than 1.9 percent.
Trade contributed almost half a percentage point to GDP growth. Elsewhere, residential construction grew at a 1.6 percent rate instead of 2.4 percent. Government spending fell at a 0.1 percent rate instead of being flat.
The GDP report also showed inflation pressures subsiding. A price index for personal spending rose at a 2.3 percent rate in the third quarter, instead of 2.4 percent.
That compared to a 3.3 percent rate in the second quarter. A core inflation measure, which strips out food and energy costs, rose at a 2.0 percent rate rather than 2.1 percent. The measure -- closely watched by the Federal Reserve -- grew at a 2.3 percent rate in the prior three months. (Additional reporting by Ellen Freilich; Editing by Andrea Ricci)