Third quarter U.S. GDP growth got revised up to 2.5%--and consumer spending is growing even faster

11/29/2010 2:45 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

Just in case you missed it last week while you were out buying a turkey, the U.S. economy is growing faster than previously estimated.

Third quarter GDP growth was actually 2.5%, according to the second estimate of U.S. GDP announced on November 23. The initial read came in at 2.0%. GDP growth in the second quarter was 1.7%.

That’s still not great growth for a recovery from a deep, deep recession. And it’s not enough to put a significant dent in the unemployment rate. But it is definitely movement in the right direction.

The below the headline numbers were actually even more encouraging. Growth in personal consumption—consumer spending—rose on revision to 2.8% from 2.5%. That’s not surprising since growth in employee wages climbed at about three times the rate initially estimated. The 2.8% growth rate in consumer spending was the highest since the last quarter of 2006.

A tricky number called real final sales—which excludes increases in inventory—climbed to 1.2% from 0.6%. One fear shared by many economists is that GDP growth represents inventory restocking after a drawdown earlier in 2010 and not real consumption. The pickup in the real final sales number diminishes that fear somewhat.

Business investment in equipment and software continued to be a big driver increasing, on revision, at a 16.8% rate. That’s up from an initial estimate of 12%.

The one number that worries me in the November 23 revision is government spending. Growth in government spending climbed to 4% on revision, up from 3.4%. One question for 2011 has always been What happens to growth in the economy when government stimulus spending dries up in 2011? That question is still with investors.

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