What's going on?

The US economy grew 2.1% in the 3rd quarter (July-September), better than the 1.5% �first guess� that was initially reported 3 weeks ago - that�s a big upward revision! Broadly speaking that�s good news for the US economy � but there are some caveats in the details....

What does this mean?

First, the good news: businesses spent more money than previously thought on things like equipment that will, presumably, be used to propel�future production. But the main driver of the upward revision was a much higher inventory build-up by businesses. That�s because, in the way economic growth is calculated, increased inventory has a positive effect (for a longer explanation, check out this article). However, higher inventories can lead to a�negative effect next quarter if companies don�t re-stock the goods they sell. The straight-up bad news was that people spent less than previously thought (�consumer spending�), companies made less money and US exports were lower (probably due to the strong dollar). These downward revisions, however, were less impactful than the upward revisions from the increased business spending and inventories.  

Why should I care?

1. The bigger picture: America is doing pretty well (comparatively at least). People complain about the anaemic growth, but the US is the only developed economy that has become bigger than its pre-financial crisis peak.
2. For markets: Better�economic growth makes an interest rate rise more likely. Most economists expect the American central bank (�the Fed�) to raise interest rates on December 16th for the first time since the financial crisis. The November jobs report, due out on December 4th, will be a big data point that will influence the decision before then � but Tuesday�s data is, on the whole, supportive of a rate rise.