November 30, 2006	Thursday	Ziqa'ad 8, 1427

WASHINGTON, Nov 29: The US economy grew at a 2.2 per cent pace in the third quarter, the government said on Wednesday, in an upward revision from an earlier estimated expansion of 1.6 per cent.

The Commerce Department figure was stronger than the average Wall Street estimate of 1.8 per cent growth for the three months through September.

It was, however, the lowest growth pace since late 2005, and a deceleration from the second quarter's 2.6 per cent growth rate for gross domestic product (GDP).

But analysts said the report offered further evidence of the “soft landing” hoped for the US economy as a result of 17 interest rate hikes by the Federal Reserve aimed at cooling inflation.

“These numbers are very much in line with the soft landing scenario,” said Sal Guatieri, senior economist at BMO Financial Group.

“I think this suggests the worst is over and we probably will see an improving trend as the drag from the housing market wanes.” Guatieri sees an improvement to a 2.7 per cent growth rate in the fourth quarter, noting that most of the weakness is confined to the property market.

“The US economy is slowing because the housing market is correcting,” he said. “But once that negative impact dissipates, other areas remain strong enough to carry the economy forward.” Robert Brusca at FAO Economics said the report was weaker than appeared, because some of the new business investment seen in the past quarter went into inventories.

“Inventories up by some $8 billion are a depressant to future output but a boost to current GDP,” he said.

A drop in imports meanwhile could suggest “domestic demand has faded -- not good if you are looking ahead.” The Commerce Department's second estimate for the July-September quarter showed improvement as a result of a downward revision of imports, and a higher estimate for business investment.

Non-residential fixed investment grew 10 per cent in the new estimate, with equipment and software spending adding 0.52 points to growth after subtracting 0.10 points in the second quarter.

The weakness in the economy was due in large part to a sharp 18 per cent drop in fixed residential investment, reflecting the slumping real estate market.

Consumers held up their share of economic activity with a 2.9 per cent increase in spending, although that figure was revised down slightly from a prior estimate of 3.1 per cent.

An inflation index linked to GDP showed a 2.4 per cent rise, down slightly from last month's estimate of 2.5 per cent. The core rate of inflation excluding food and energy was 2.2 per cent, revised down from 2.3 per cent. —AFP