GDP Accelerated Last Quarter, as Firms Stocked Their Shelves

The economy grew by 3.6 percent last quarter, the government says, up from 2.5 percent in the spring.

Shoppers visit Target on Saturday, Nov. 23, 2013, in New York.

Target said that data was accessed for about 40 million customers who paid via credit or debit cards at Target stores between Nov. 27 and Dec. 15.

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The economy grew at an annual rate of 3.6 percent in the third quarter, the government reported Thursday, indicating a marked improvement from second-quarter GDP growth of 2.5 percent. The new third-quarter estimate, the second of three that will be reported this year, is also nearly a full percentage point faster than previously estimated. The government's previous estimate of third-quarter GDP growth came in at 2.8 percent.

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The government reported that the jump in its estimate of economic growth is due to more business investment in inventory than previously thought, meaning businesses boosted inputs and goods to sell to customers in the future. Private inventory investment accounted for nearly 1.7 percentage points of GDP growth in the third quarter, up sharply from 0.41 percentage points in the second quarter.

A boost in inventories last quarter could either bode well or poorly for fourth-quarter growth. Stocking up on inventories now can subtract from future inventory investment, meaning businesses with full warehouses in the fourth quarter may decide against buying further goods.

"Inventories accounted for almost half (1.7 percentage points) of growth, and businesses likely will cut back on investment in inventories in late 2013 and early 2014, weighing on near-term growth," writes Gus Faucher, senior economist at PNC, in a commentary on the GDP figures.

However, businesses will have to stock up once again if consumers decide to spend more, which the latest data say they have.

"We have more information than just the GDP report," says James Marple, senior economist at TD Economics. "Retail sales in October were very good. Auto sales in November were huge."

Fourth-quarter GDP could also be dragged down by a partial government shutdown that some economists at the time estimated would shave half a percentage point or more from economic growth. Marple thinks the effect will be smaller, and also that it will disappear at the start of the new year.

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"I think directly, the shutdown probably took about 0.2 percentage points" off of GDP growth, he says, "but 0.2 percentage points of direct contribution will be made up in the first quarter."

Marple adds that it's not helpful for the government to continue reaching fiscal impasses, but that there is also danger in excessive hand-wringing.

"We don't want to continue to shut down the government over and over again, but you don't want to overstate the impact of that either," he says. "It's not something that's going to permanently lower the level of economic activity in the U.S."

The GDP report contained one other figure that indicates shaky growth. Gross domestic income, an alternate measure of economic growth focused on incomes, rather than spending, plummeted last quarter. That measure grew by only 1.4 percent last quarter, down from 3.2 percent in the second quarter.

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