Sales of previously owned U.S. homes rose in November, offering the latest sign the economy was ending the year on a more solid footing after a sluggish third-quarter performance.
Gross domestic product growth was revised up to an annualized rate of 2.6 percent from 2.5 percent, reflecting a higher than previously estimated pace of inventory accumulation, the Commerce Department said in its final estimate of third-quarter GDP on Wednesday.
Separately, sales of existing homes rose 5.6 percent to a seasonally adjusted annual unit rate of 4.68 million units, the National Association of Realtors said, slightly below expectations for 4.71 million unit pace.
Economists, who had expected GDP growth to be revised up to a 2.8 percent pace, were little fazed and pointed out that recent data suggested growth picked up in the fourth quarter.
The more recent data suggests we're seeing reasonably healthy retail sales growth, pretty healthy investment spending, some growth in employment, so maybe the core growth or final sales growth is starting to accelerate in the fourth quarter, said Zach Pandl an economist at Nomura Securities International in New York.
U.S. stocks edged higher to extend four days of gains that drove the broader Standard & Poor's 500 index to levels not seen since before Lehman Brothers went bankrupt two years ago. Prices for U.S. government debt were slightly down, while the dollar was flat against a basket of currencies.
The economy expanded at a 1.7 percent rate in the second quarter.
Economists expect growth to remain supported in 2011 by an $858 billion tax deal, which will help plug the gap from the fading boost from the rebuilding of inventories by businesses and winding down of the government's $814 billion stimulus package.
The tax plan, widely viewed as a second fiscal stimulus for the economy, is seen complementing the Federal Reserve's program to buy $600 billion worth of government bonds to shore up the recovery.
Third-quarter growth estimates were revised to reflect a $121.4 billion increase in business inventories rather than the $111.5 billion rise reported last month. Inventories added 1.61 percentage points to GDP growth.
Excluding inventories, the economy expanded at a 0.9 percent pace rather than 1.2 percent.
CONSUMER SPENDING NOT AS ROBUST
The increase in consumer spending was revised down to a 2.4 percent rate from 2.8 percent. Consumer spending accounts for more than two-thirds of U.S. economic activity and contributed 1.67 percentage points to growth in the July-September period.
Still, consumer spending during the quarter was the fastest since the first quarter of 2007 and was a pick-up from the second quarter's 2.2 percent pace.
Government spending was trimmed to show a 3.9 percent rate rise rather than 4.0 percent. There were also slight downward revisions to business investment as spending on equipment and software estimates were lowered.
Business spending increased at a 10.0 percent rate instead of 10.3 percent. That was slower than the second quarter's brisk 17.2 percent rate. Spending on software and equipment grew at a 15.4 percent rate instead of 16.8 percent.
Import growth was unrevised, but exports were a bit stronger that previously estimated, leaving a trade deficit that lopped off 1.70 percentage points from GDP.
Residential investment was little changed, contracting at a 27.3 percent rate, instead of 27.5 percent. Housing is lagging the recovery and a report from the Mortgage Bankers Association showed mortgage applications last week fell to their lowest level in nearly a year.
We are still in an environment of sluggish demand for housing. The recent increase in mortgage rates should weigh on affordability; however, that should be countered somewhat by an improving economic backdrop, said Michelle Meyer, a U.S. economist at Bank of America Merrill Lynch, in New York.
In the GDP report, after tax corporate profits were revised down to show a 0.2 percent rise in the third quarter -- the weakest reading since the fourth quarter of 2008 -- instead of 1.0 percent, after increasing 3.9 percent in the April-June period.
The report also showed no inflation pressures in the economy. The Fed's preferred inflation measure, the personal consumption expenditures price index, excluding food and energy, rose at an annual rate of 0.5 percent instead of 0.8 percent.
That was the smallest increase since records began in 1959. The index increased 1.0 percent in the second quarter.
(Reporting by Lucia Mutikani and Corbett Daly; Additional reporting by Karen Brettell and Julie Haviv in New York; Editing by Andrea Ricci)