US economic growth was likely stronger in Q3

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WASHINGTON (AP) — The U.S. economy appears to have grown over the summer faster than first thought.

U.S. companies sold more goods overseas in September, helping narrow the nation's trade gap substantially. And wholesale companies boosted their stockpiles after reporting their best sales in 18 months.

Those figures could lead the government to sharply revise its estimate of the economy's growth rate in the July-September quarter up from the 2 percent annual rate it estimated last month.

Macroeconomic Advisers predicted Friday that the government will estimate the economy's third-quarter growth rate at 3.2 percent when it issues its second estimate on Nov. 29. Economists at Barclays also predict growth at that rate. Economists at High Frequency Economics said estimated growth could be raised to 3.1 percent.

If they are correct, it would mark only the third quarter since the recession officially ended in June 2009 that the economy has grown at an annual rate above 3 percent.

"The third quarter is coming in much stronger than anybody had expected," said Ben Herzon, an economist at Macroeconomic Advisers.

Economists grew more optimistic Friday after seeing two September reports from the Commerce Department that weren't included in the government's initial estimate of growth, released Oct. 26.

Wholesale stockpiles grew 1.1 percent in September, and sales at the wholesale level rose 2 percent, according to a report released Friday. When businesses order more goods, it generally leads to more factory production and that boosts economic growth.

The inventory data followed a government report Thursday that the U.S. trade deficit narrowed to its lowest level in nearly two years because exports rose in September to a record high. That means U.S. companies earned more from overseas sales while consumers and businesses spent less on foreign products.

The current October-December quarter began with promising signs on jobs and consumer spending.

Employers added 171,000 jobs in October, and hiring was stronger in August and September than first thought, the government said last week. And a separate report Friday showed that the University of Michigan's consumer sentiment index rose in early November to the highest level since July 2007.

Still, Herzon predicts growth is weakening in the October-December quarter to an annual rate of just 1.1 percent. That's because he expects businesses have slowed their pace of restocking since the third quarter. And the government likely spent less on defense after a sharp rise in the third quarter.

"We don't think the fourth quarter will be as robust," he said.

Many economists expect growth to stay at 2 percent for the entire year, little changed from last year's lackluster 1.8 percent growth rate.

But Herzon said the economy could expand at a better pace next year. He is forecasting growth of 2.9 percent in 2013. He's optimistic that Congress and the administration will reach a budget agreement to keep big tax increases and spending cuts from taking effect beginning in January.

Those tax increases and spending cuts are collectively known as the "fiscal cliff."

"In our forecast, conditions in Europe gradually improve, and the fiscal cliff is largely avoided," Herzon said. "With uncertainty over the fiscal cliff resolved, business investment spending begins to improve."

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