Pace of 3Q growth revised downward

The U.S. economy grew more slowly than previously estimated in the third quarter, but the latest data contained hints output would pick up in late 2011.

Gross domestic product grew at a 2.0 percent annual rate in the July-September quarter, the Commerce Department said in a revised estimate Tuesday, down from the previously reported 2.5 percent.

While the pace of growth was weaker than economists had expected, the composition of the report, particularly firm consumer spending and the first drop in businesses inventories in nearly two years, may set the stage for a stronger performance in the final months of the year.

Businesses likely anticipated weaker demand in the quarter, keeping inventories light. With consumer spending actually showing resilience, analysts said, businesses will now have to rebuild inventories, keeping factories busy.

"Inventory investment was lower, so firms are more likely to produce more goods going forward. And exports rose," said Cary Leahey, a senior economist at Decision Economics in Manhattan.

Data so far suggest fourth-quarter growth could exceed 3 percent, which would be the fastest in 18 months.

But weak personal income growth could crimp future spending.

Taking inflation into account, disposable income fell at a steeper 2.1 percent rate instead of 1.7 percent, the report showed. It had declined 0.5 percent in the prior three months.

The failure of the congressional supercommittee to agree on a deficit reduction package of at least $1.2 trillion also clouds the outlook. It is less clear now that Congress will extend a payroll tax cut and emergency unemployment benefits due to expire next month.

Minutes of the U.S. central bank's Nov. 1-2 policy meeting published Tuesday showed a few Federal Reserve officials believed the outlook for modest growth might warrant more policy easing in an effort to boost the economy.