U.S. economic growth revised upward for 3Q

The U.S. economy grew at a 2.7 percent annual rate from July through September, much faster than first thought.

The strength is expected to fade in the final months of the year because of the impact of superstorm Sandy and uncertainty about looming tax increases and government spending cuts.

The Commerce Department said Thursday that growth in the third quarter was significantly better than the 2 percent rate estimated a month ago. And it was more than twice the 1.3 percent rate reported for the April-June quarter.

The main reason for the upward revision to the gross domestic product was businesses restocked at a faster pace than previously estimated. That restocking offset weaker consumer spending growth.

GDP measures the nation's total output of goods and services -- from restaurant meals and haircuts to airplanes, appliances and highways.

Most economists say economic growth is slowing to below 2 percent in the current October-December quarter. That's generally considered too weak to rapidly lower the unemployment rate.

Paul Ashworth, chief U.S. economist at Capital Economics, said companies are likely restocking more slowly now. Businesses typically cut back on restocking when they think consumers will spend less. Consumer spending drives roughly 70 percent of economic activity.

Economists cite two reasons for the anticipated weakness in spending. Superstorm Sandy halted business activity along the East Coast in late October and November. And spending may weaken in the final weeks of the year if lawmakers and Obama fail to reach a deal to avoid the "fiscal cliff." That's the name for sharp tax increases and spending cuts that would occur in January without a deal.

Companies are "likely thinning inventories just in case Congress fails to do its job, which is always a possibility," said Joel Naroff of Naroff Economic Advisors.