US economy sees fastest growth in three years in third quarter

The US economy posted its fastest growth in three years in the third quarter, indicating a broad-based expansion is gaining momentum, according to official figures released Wednesday.

The revised data surpassed President Donald Trump's three percent target for the second time in a row, showing that back-to-back hurricanes in late summer barely left a scratch on the world's largest economy.

Third-quarter GDP growth was revised up to 3.3 percent, three tenths of a point higher than an initial estimate and the strongest performance since the third quarter of 2014, according to the Commerce Department.

The news comes as Republican lawmakers in Washington enter a crucial phase in efforts to adopt a sweeping overhaul of the US tax code.

The White House and senior Republican lawmakers have argued that the $1.5 trillion package of tax cuts will pay for itself by spurring economic growth, but economists say there is little evidence to support this claim, especially in an already-growing economy.

President Donald Trump on Wednesday took credit for the rising growth rate even though the principal planks of his economic agenda have yet to take effect.

Addressing supporters in St. Charles, Missouri, Trump said the growth rate was the "largest increase in many years."

"Did you ever think you would hear that in less than a year?" he said of his achievements.

With growth at a 3.1 percent clip in the April-June period, the six months from April to October have seen the fastest expansion since 2014.

While visually a victory for Trump, the growth rate for the full year is likely to come in closer to 2.5 percent, in line with growth in prior years.

The higher third-quarter growth reflected upward revisions to business spending on computer software and transportation equipment, with investment in equipment hitting its fastest pace in three years at 10.4 percent.

- Sluggish wage growth -

State and local governments also appear to have spent more on buildings while manufacturing inventories were higher than previously estimated. That helped offset downward revisions to durable goods orders and services exports.

In congressional testimony on Wednesday, outgoing Federal Reserve Chair Janet Yellen said the expansion was "increasingly broad-based across sectors" as well as in much of the rest of the world.

She said she expected growth would continue and the job market would strengthen "somewhat further," eventually causing wages to rise after a period of sluggish growth.

In a sign of persistent weakness, however, the numbers released Wednesday showed a downward revision to wages in the second quarter of the year.

The quarterly increase in consumer spending on services, a key driver of the US economy, was also unrevised at 1.5 percent, its lowest level in four years.

The faster growth was likely to be one more factor nudging the Federal Reserve toward another interest rate increase next month -- its third of the year -- although policymakers already were headed in that direction.

Also paving the way for another rate hike, the latest Fed "beige book" survey released Wednesday said business contacts reported rising prices and wages, with increased costs in some cases being passed to consumers.

Forecasts for growth in the fourth quarter remain mixed. The Atlanta Federal Reserve Bank had predicted GDP would rise even higher in the final three months of the year to 3.4 percent.

However, Ben Herzon, senior economist at IHS Markit, said the latest third-quarter estimate still pointed to a slowdown for the October-December period, which is not unusual.

"Based on this report, we left our forecast of fourth-quarter GDP growth unchanged at 2.5 percent," he said in a research note.