Economic growth revised up to 2.1% in Q3 from initial 1.5% estimate

The U.S. economy grew more rapidly than previously thought in the third quarter as businesses more aggressively replenished their stocks.

Gross domestic product expanded at a seasonally adjusted annual rate of 2.1%, the Commerce Department said Tuesday, up from the 1.5% pace first estimated. Economists surveyed by Bloomberg expected a revision to 2% growth.

Consumer spending was surprisingly resilient in the July-September period despite a stock market roiled by global economic troubles and a slowdown in job growth. But the turmoil prompted businesses to more modestly increase their investment in new buildings and equipment, and to rein in stockpiling.

Yet businesses added more to inventories than previously believed. The reduced stockpiling subtracted 0.59% from growth, down from the 1.44% first estimated.

Meanwhile, business investment was stronger than believed, growing 2.4%. Equipment outlays, a good measure of capital spending, increased a robust 9.5%, though spending on structures fell sharply.

Home construction surged more than previously estimated, rising 7.3%, a positive sign for the recovering housing market.

Consumer spending growth was revised down modestly to a still healthy 3%. Consumption, which accounts for more than two-thirds of economic activity, has largely underpinned growth this year as consumers benefit from low gasoline prices, solid job growth and reduced household debt.

Trade, however, was more of a drag on the economy than initially estimated as a strong dollar made exports more expensive for foreign customers and imports cheaper for US consumers. Exports increased just 0.9%, while imports rose 2.1%.

Even before Tuesday's revision, the strength in core domestic demand last quarter helped lead the Federal Reserve to signal that it will likely raise interest rates next month for the first time in nearly a decade, assuming the economy and labor market continue to advance. More recent developments have bolstered that view, with stocks rallying and payroll growth bouncing back strongly in October.

Many economists expect growth to pick up to 2.5% an annual rate in the current quarter, citing the reduced effects of both the greenback and low oil prices that have curtailed energy investment.

Yet Michael Gapen, chief U.S. economist of Barclays Capital, says the stronger business stockpiling in the third quarter could be offset in the current quarter, tempering growth.