GDP Surprises Again, Up by 4.1 Percent in Third Quarter

Consumer and government spending helped to boost economic output in the third quarter.

A woman walks with shopping bags on Dec. 7, 2010, in New York City.

Consumer and government spending helped to boost economic output in the third quarter.

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The nation's GDP grew at an annual rate of 4.1 percent in the third quarter, the Commerce Department reported Friday, the fastest quarterly pace since the end of 2011. The estimate also represents an acceleration from second-quarter estimates of 2.5 percent and is well above economists' consensus estimates, which were at 3.6 percent, according to Bloomberg.

[READ: GDP Accelerated Last Quarter as Firms Stocked Their Shelves]

The department revises its GDP figures as it receives more complete data on economic activity. This, the department's third estimate of economic output last quarter, represents the second sharp upward revision in third-quarter GDP. The initial estimate had been at 2.8 percent, and the second estimate came in at 3.6 percent.

This revision reflects the fact that increases in consumer spending and nonresidential fixed investment – business investment in areas such as equipment and software – were higher than previously estimated. That is encouraging, as the second upward revision had come mostly from business inventory investment, a spending category that can signal only temporary economic growth. If businesses stocked up on inventories in the third quarter, economists said, they might choose to hold off on inventory spending in the next.

The acceleration from the second quarter was largely due to greater business inventory investment, slower imports, and faster spending both by state and local governments as well as consumers.

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Meanwhile, another measure of economic output remains muted. Gross domestic income, an alternate measure of GDP, remains modest but was also revised upward, from 1.4 percent growth to 1.8 percent. While GDP tracks money spent within the economy, GDI tracks incomes. Though the two measures track together over the long term and should in theory be equal, they on an individual quarterly basis register different readings, as the two measures use different source data.

Quarterly GDP growth of 4.1 percent represents not just an acceleration from the third quarter; it shows longer-term steady recovery from weaker figures at the end of 2012. In the fourth quarter of last year, GDP growth was only at 0.1 percent. Though that climb since then is encouraging, it's important to note that quarterly GDP measures can be volatile; annual measures smooth out the bumps. In the past year, GDP has only grown by 2.0 percent, exactly where annual growth was at the end of both 2012 and 2011, and below the 3.1 percent growth rate seen one year ago, in the third quarter of 2012.

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