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US GDP Grew 3.6% In Third Quarter, More Than Previously Thought

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Economic growth is up while jobless claims are down, according to new economic data released Thursday morning. But in a case of "what's good news is bad news," U.S. markets are down, suggesting a fear that economic growth means a tapering of the Federal Reserve's pump of money into the economy.

According to a release from the Bureau of Economic Analysis, third quarter real gross domestic product (GDP) increased at a rate of 3.6%, up from the BEA's initial estimate of a 2.8% growth rate and higher than economist predictions of 3.1%. This is also an increase over second quarter GDP growth, which increased at a rate of 2.5%.

The BEA said the increase in third quarter real GDP was the result of positive contributions from a number of sources, including private inventory investment, personal consumption expenditures, exports and state and local government spending.

"The upward revision to third-quarter GDP growth to 3.6% annualized, from the initial 2.8% estimate, certainly adds to the evidence that the recovery is gaining momentum. At the margin, it points to an earlier QE taper by the Fed," Paul Ashworth, chief U.S. economist for E-Capital Economics, said in a note Thursday morning. He noted that when added with the 2.5% growth from the second quarter of 2103, this third quarter GDP growth means the economy has been growing at a rate above its "potential pace," or a rate between 2% and 2.5%, for six months now.

Ashworth attributed the growth to strong inventory accumulation, which he said is estimated to have added 1.6% to overall GDP growth.

The price index for gross domestic purchases -- a measurement of prices paid by U.S. residents -- increased 1.8% in the third quarter, up from a 0.2% increase in the second quarter. Meanwhile, real gross domestic income (GDI), a measurement of economic output as costs incurred and incomes earned in GDP production, increased 1.4% in the third quarter, a drop from the 3.2% increase in the second quarter of this year. The BEA said that the difference between GDP and GDI can occur from a number of reasons (including source data) but that over longer time spans, estimates of the two measures tend to follow similar patterns.

Jim O'Sullivan, chief U.S. economist, said in a Thursday morning note that despite the third quarter GDI dip the trend in GDI is actually stronger than the trend in GDP. "Real GDI is up 3.0% over the past four quarters combined, versus just a 1.7% increase in real GDP. The pattern adds to our suspicion that some of the recent divergence between solid employment growth and weaker GDP will eventually be closed with upward revisions to GDP," he said.

In other economic news, the Department of Labor released its weekly jobless claims report Thursday morning, and these results were also better-than-expected. Seasonally-adjusted claims fell by 23,000 to 298,000, significantly beating the 320,000 claims economists had predicted. The four-week moving average came in at 322,250, an over-10,000 decrease over last week's revised average of 333,000.

According to O'Sullivan, these results are a sign that the economy has shaken off the effects of the "shutdown-and-debt-limit saga" and that the recovery in the labor market is still on track. Economist Ashworth somewhat agrees, saying that the jobless claims report is "good news as far as it can be trusted." However, he warned, "these figures are prone to distortions around the Thanksgiving holiday so we would caution against reading too much into the latest decline."

After the release of this largely good economic news, the U.S. markets opened down across the board, with the Dow opening 32 points down, the S&P opening 4.7 points in the red and the Nasdaq starting the day with a near-3 point decline.