U.S. economy grew at 2.7 percent rate in summer

, The Associated Press

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The U.S. economy grew at a 2.7 percent annual rate from July through September, much faster than first thought. The strength may fade in the final months of the year if Congress and the Obama administration fail to reach a budget deal.

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 two biggest factors in the upward revision were larger gains in business stockpiles and a boost in export sales. That offset weaker consumer spending.

Still, most economists say growth has slowed since then to below 2 percent in the October-December quarter. That's generally considered too weak to rapidly lower the unemployment rate.

Economists cite two reasons for the anticipated weakness.

Superstorm Sandy halted business activity along the East Coast in late October and November. And many businesses and consumers could end up scaling back on spending in the final weeks of the year, if lawmakers and Obama fail to avert the "fiscal cliff." That's the name for sharp tax increases and spending cuts that would occur in January without a deal.

So far, many reports suggest economic activity picked up early in the fourth quarter. And if Congress and the White House reach agreement and avoid the fiscal cliff, economic growth could accelerate next year, many economists say.

A Federal Reserve survey released Tuesday showed improved consumer spending and steady home sales helped lift growth from October through early November in most parts of the United States. The one exception was the Northeast, where the storm led to widespread disruptions.

The Labor Department said employers added 171,000 jobs last month and hiring in September and August was stronger than previously thought.

Rising home values, more hiring and lower gas prices pushed consumer confidence in November to the highest level in nearly five years, according to the Conference Board.

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