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US economy grew stronger 2.7% in 3Q

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WASHINGTON, Nov 29 AFP

November 30 2012, 02:09AM

The US economy grew at a 2.7 per cent pace in the third quarter, faster than previously estimated, the Commerce Department says in a report that nevertheless points to a weaker fourth quarter.

Gross domestic product growth was revised upward from the prior estimate of 2.0 per cent, reflecting in part increases in federal government spending and private inventory investment, the department said.

Growth in the July-September quarter was the strongest of the year, and followed a meagre 1.3 per cent pace in the second quarter.

Still, growth remained modest as the world's largest economy headed into the fourth quarter.

"This morning's GDP report is one of those rare instances when growth is a lot stronger than in the advance report but the domestic economy turns out to be a lot weaker," said Chris Low at FTN Financial.

Growth in consumer spending, which accounts for 70 per cent of output, was revised down to 1.4 per cent, just slightly above the second-quarter pace.

Inflation slowed slightly from the second quarter. Prices rose 1.4 per cent in the third quarter and the core price index, excluding food and energy prices, increased 1.1 per cent.

Sal Guatieri at BMO Capital Markets said the weaker momentum in consumer and business spending and a jump in business inventories suggested a slower pace in the fourth quarter.

"Outside of the housing market recovery, the economy has little momentum as we edge closer to the year-end fiscal cliff," he said.

The Federal Reserve on Tuesday reported that businesses around the country are increasingly worried about the combination of significant spending cuts and tax increases that will occur in January unless politicians reach a compromise on a less severe deficit reduction plan.

Manufacturers said they were worried about the economy in 2013 "in part due to the uncertainty regarding the outcome of the fiscal cliff", the Fed said in its Beige Book survey of regional economies.

Economists say the $US500 billion ($A480 billion) amalgam of tax hikes and spending cuts required by last year's debt-ceiling deal could pitch the US economy back into recession in 2013.

Meanwhile US jobless claims fell back to 393,000 in the most recent week, the Labor Department said on Thursday, still showing the impact of superstorm Sandy, which blasted the Northeast in late October.

Claims in the week to November 24 fell from 416,000 the previous week and 451,000 in the November 10 week.

But they remained well above the 360,000-380,000 range held most of this year.

The three weeks of high claims, much the result of the shutdown of the economy in and around New York due to the storm, pushed the four-week rolling average to 405,250.

Many companies in the region, especially small businesses, are still struggling to get back to normal nearly one month after the storm struck.