The nation's economy grew at a 3.6 percent annual rate in the third quarter, the fastest in more than a year, but a buildup in business inventories suggests the Federal Reserve will likely maintain its bond-buying stimulus for now, despite a drop in unemployment claims.
The Commerce Department's second estimate of growth from July to September released yesterday far exceeded the 2.8 percent initially reported last month and was well above the 2.5 percent growth rate for the second quarter.
"The problem is all of the upward revision was in a buildup of goods and services produced, but not sold," said Paul Edelstein, director of financial economics at IHS Global Insight in Lexington.
As a result, Edelstein said, in the fourth quarter, the nation will probably see a smaller buildup in inventories, which is going to hurt gross domestic product.
"The buildup in the third quarter was in some ways a mistake," he said. "Adding to it is the fact that the holiday shopping season is not going that well. So that's probably going to make the problem worse."
For those reasons, Edelstein said, the Fed likely will continue buying $85 billion in bonds each month to keep borrowing costs low, despite a Labor Department report yesterday that showed initial claims for state unemployment benefits dropped 23,000 to a seasonally adjusted 298,000 last week.
A better indicator of whether the economy is truly strengthening is a report due out today that includes the number of jobs created.
Herald wire services contributed to this report.
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