US third-quarter growth rate revised up to 3.9%

The US Commerce Department on Tuesday raised its estimate of gross domestic product of the US to a 3.9% annual pace from the 3.5% rate reported last month, reflecting upward revisions to business and consumer spending.

US economic growth was far stronger than initially thought in the third quarter, pointing to strengthening fundamentals that should support the economy for the rest of the year.

The economy has now experienced the two strongest back-to-back quarters of growth since 2003 with growth increasing at a 4.6% rate in the second quarter.

Economists polled by Reuters had expected growth would be cut to a 3.3%.

Inventories were also revised higher, with restocking now only accounting for a mild drag to GDP growth. That also helped to offset downward revisions to export growth.

Inventories, however, could weigh in on growth in the final three months of the year. Spending on residential construction was also revised higher.

It was the fourth quarter out of the past five that the economy has expanded above a 3.5% pace. Data ranging from manufacturing to employment and retail sales suggest that the economy retained some of that momentum early in the fourth quarter.

The United States remains a bright spot in an increasingly gloomy global economy, with growth in the euro zone and China slowing significantly and Japan back in recession .

The US GDP report also showed corporate profits after tax grew at a 3.2% rate in the third quarter, slowing from the second quarter's robust 8.6% pace.

The brisk economic growth pace could boost expectations that the Federal Reserve will start raising its short-term interest rate sometime in mid-2015. The US central bank has kept its benchmark lending rate near zero since December 2008.

Underscoring the economy's firming fundamentals, growth in domestic demand was revised up to 3.2% in the third quarter instead of the previously reported 2.7%.

Consumer spending, which accounts for more than two-thirds of US economic activity, grew at  2.2% instead of the previously reported 1.8%.

Growth in business investment was raised to  7.1% from a 5.5%, with a stronger pace of spending on equipment than previously thought accounting for the bulk of the revision.

Export growth was lowered to 4.9% from the previously reported 7.8%, while imports were revised up. That left a trade deficit that contributed 0.78 percentage point to GDP growth instead of the previously reported 1.32 percentage points.

Government spending was also cut as outlays at state and local governments were not as strong as previously reported.