While the bigger-than-expected drop in retail sales could give the Federal Reserve room to ease back on its rate hikes, the figure fuelled worries about the US economy
Consumer spending in the third quarter was revised down. AFP

The U.S. economy expanded in the third quarter at a pace that was stronger than initially estimated.

Gross domestic product grew at an annual rate of 5.2% from July through September, the Commerce Department said Wednesday in its second estimate for the economy in the quarter. The first estimate pointed to 4.9% growth.

The revised rate of expansion is the fastest since the fourth quarter of 2021, when the economy grew 7%.

"The update primarily reflected upward revisions to nonresidential fixed investment and state and local government spending that were partly offset by a downward revision to consumer spending," the Bureau of Economic Analysis said in the statement.

Consumer spending rose 3.6%, less than the initial reading of 4%. The PCE price index, an inflation measure in the GDP report, was also revised down to 2.8% from 2.9%.

The final revision of the GDP data will be released on Dec. 21.

Senior Federal Reserve officials have said that the economy and inflation are reacting with a slowdown to the current level of interest rates, the highest in 22 years. Their comments are being interpreted as a signal that the Fed's tightening cycle could have ended.

"I am encouraged by what we have learned in the past few weeks -- something appears to be giving, and it's the pace of the economy," Fed Governor Christopher Waller told a conference in Washington on Tuesday. Economic data from October "are consistent with the kind of moderating demand and easing price pressure that will help move inflation back to two percent," he added.

Fed Chair Jerome Powell speaks Friday and may make more comments on the economic outlook.