Economic Growth Revised Lower in 3Q

U.S. economic growth was slower than previously estimated in the third quarter on a sharp drop in healthcare spending, but stronger business investment and a fall in inventories pointed to a pickup in output in the current period.

Gross domestic product grew at a 1.8% annual rate in the third quarter, the Commerce Department said in its final estimate on Thursday, down from the previously estimated 2 percent.

Economists had expected growth to be unrevised at 2%. Though spending on healthcare dropped by $2.2 billion, spending on durable goods was stronger than previously estimated, indicating household appetite to consume remains healthy.

Health-care spending had previously been reported to have increased at a $19.7 billion rate.  Healthcare spending subtracted about 0.1 percentage point from the GDP change in the final revision, whereas the previous estimate had it adding 0.61 percentage point to growth.

Even as much of the rest of the world is slowing down and a mild recession is forecast in Europe next year, the U.S. economy remains resilient.

The labor market is improving, households continue to spend, home building is picking up and factory output is expanding, putting the economy on course for at least a 3 percent growth pace in the fourth quarter. That would be the fastest pace in 18 months.

Despite the downward revision, last quarter's growth is still a step-up from the April-June period's 1.3% 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 consumer spending to a 1.7% growth rate from 2.3% because of adjustments to healthcare services, in particular nonprofit hospitals.

Spending on durable goods was, however, revised up to a 5.7% pace from 5.5%.

Business inventories dropped $2.0 billion, which sliced off 1.35 percentage points from GDP growth. Inventories had previously been estimated to have declined $8.5 billion.

The drag from inventories was offset by strong business spending, which increased at a 15.7% rate, instead of 14.8%.

Excluding inventories, the economy grew at a still brisk 3.2% rate, revised down from 3.6% pace. Final sales increased at a 1.6% pace in the second quarter.

The Department also said after-tax corporate profits increased at a 2.7% rate, revised down from 3.0%. After tax profits increased at a 4.3% rate in the second quarter.

Export growth was stronger than previously estimated, rising at a 4.7% rate instead of 4.3%. Imports increased at a much faster 1.2% rate rather than 0.5%.

Trade contributed 0.43 percentage point to GDP growth. Elsewhere, residential construction grew at a 1.3% rate instead of 1.6%. Government spending fell at an unrevised 0.1%.

The GDP report also showed some inflation pressures in the economy. A price index for personal spending rose at an unrevised 2.3% rate in the third quarter.

That compared to a 3.3% rate in the second quarter.  A core inflation measure, which strips out food and energy costs, rose at a 2.1% rate rather than 2.0%. The measure -- closely watched by the Federal Reserve -- grew at a 2.3% rate in the prior three months