WRAPUP 4-US growth faster but not enough to dent joblessness

* Third-quarter growth revised up to 2.5 percent rate

* Spending and exports boost growth, housing a drag

* Inventories’ contribution surprisingly revised down

* Existing home sales fall 2.2 percent in October
(Adds Fed minutes, updates markets)

By Lucia Mutikani

WASHINGTON, Nov 23 (BestGrowthStock) – The U.S. economy grew faster
than previously estimated in the third quarter, but a slump in
sales of previously owned homes in October indicated the
recovery remains too anemic to reduce high unemployment.

The Commerce Department on Tuesday revised its estimate of
third-quarter growth in gross domestic product to a 2.5 percent
annual rate from 2 percent to reflect stronger spending and
exports than initially thought.

Concerns about slow growth and low inflation spurred the
Federal Reserve early this month to launch a plan to buy $600
billion in government bonds and minutes of the Nov. 2-3 meeting
showed policymakers considered even more aggressive action to
boost the economy. For details, see [ID:N23157346]

Optimism over the acceleration in growth, which was a touch
above economists’ forecasts for a 2.4 percent pace, was
dampened somewhat by news of a bigger-than-expected drop in
sales of previously owned homes last month.

“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.”

For graphics, click on:

U.S. third-quarter GDP: http://r.reuters.com/het76q

U.S. existing home sales Oct: http://r.reuters.com/rew76q

Quantitative easing is the term economists use for the
Fed’s asset purchase plan, a controversial program that some
warn could spark inflation while doing little to create jobs.

Others have sided with the Fed. Nouriel Roubini, head of
RGE Global Economics, told Reuters Insider the bond-buying plan
was a “necessary evil” even though it would add only 0.3
percentage point to growth next year. [ID:nRTV165914]

The Fed minutes also showed officials at the U.S. central
bank cut growth forecasts for this year and 2011 and saw
unemployment remaining elevated. [FED/FCASTS]


Although there are signs economic activity picked up mildly
as the fourth quarter started, growth will likely fall short of
the more than 3 percent rate that economists say is needed to
significantly cut the 9.6 percent unemployment rate.

GDP, which measures total goods and services output within
U.S. borders, rose at a 1.7 percent rate in the second

Rising tensions on the Korean peninsula and worries over
the euro zone’s sovereign debt crisis overshadowed the growth
data in U.S. financial markets. Stocks fell more than 1 percent
on Tuesday afternoon, while Treasury debt prices rose. The
dollar hit a two-month high against the euro.

Economists are cautiously watching developments in Europe.
When Europe’s debt crisis first flared in the spring, it slowed
the U.S. economy’s recovery from its worst recession since the

In October, sales of existing homes fell 2.2 percent to a
4.43 million unit annual rate. Economists had expected only a 1
percent drop.

Though housing remains a weak spot in the economy, consumer
spending appears to be on solid footing.

Consumer spending, which accounts for more than two-thirds
of U.S. economic activity, grew at a 2.8 percent rate in the
July-September period — a pickup from the second quarter and
the fastest pace since the fourth quarter of 2006 .

Data on Wednesday will likely show that spending maintained
its firmer tone as the fourth quarter started and sales on
Black Friday, the traditional start to the holiday shopping
season, look set to be firm. [ID:nN23126294]

“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.

Third-quarter growth also received a boost from government
spending as state and local expenditures were revised up.

Business investment was a touch higher than initially
estimated, lifted by much stronger spending on equipment and
software, though investment in structures was weak.

But the contribution from business inventories was
surprisingly smaller, which economists said signaled a shift
towards more sustainable growth.

“Growth is not anymore being provided exclusively by
temporary support factors, such as the stimulus program and
private inventories, but is coming more and more from domestic
demand,” said Harm Bandholz, chief U.S. economist at UniCredit
Research in New York.

“The critical hand-off is under way. This is good news as
it makes the recovery, as slow as it is, more sustainable.”

With growth still sluggish, inflation was subdued in in the
third quarter. 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 percent.

That was the smallest increase since the fourth quarter of
2008 and the second-lowest since the fourth quarter of 1962.

The GDP report also showed after-tax corporate profits rose
1 percent in the third quarter after growing 3.9 percent in the
April-June period.
(Reporting by Lucia Mutikani; Editing by Kenneth Barry)

WRAPUP 4-US growth faster but not enough to dent joblessness