GDP Rise Revised Down to 2.8%

WASHINGTON (TheStreet) -- The nation's economy didn't grow as fast as first believed, hinting that the economic recovery still has a ways to go.

In its first revision, the Commerce Department said third-quarter U.S. gross domestic product grew at an annual rate of 2.8% in the third quarter. That compares to its initial GDP reading of 3.5% growth offered at the end of October.

The Commerce Department said the difference from the advance figure largely reflected upward revisions in imports, coupled with downward revisions to personal consumption expenditures and nonresidential fixed investment that were offset by an upward revision to exports.

Trade deficit figures released in the middle of November showed the gap widening to $36.5 billion. Even then, economists expected downward revisions in third-quarter GDP, since increasing imports weigh on growth. The report showed imports grew 20.8% instead of the 16.4% originally reported.

Consumer spending grew at a 2.9% rate. Still, that's softer than the 3.4% rise estimated in the advance report.

"This market doesn't expect consumers to open up their pocket books anytime soon," says Peter Cardillo, chief market economist at Avalon Partners. "It just points that the recovery is not being led by the consumer, so you can't expect too much of strong growth rate next year."

Still, the downward revision in the headline figure was largely expected and landed in line with economists' estimates provided by Briefing.com. The quarterly growth also marks an abrupt change from recent quarters, when the economy contracted at a 0.7% annual rate in second-quarter and 6.4% in the first-quarter.

"Pretty much in line with what we were expecting," says Brian Bethune, chief U.S. financial economist at Global Insight. "Overall, it's still a good quarter in terms of growth: 2.8% is still a damn good rate of growth. It is certainly better than what we're seeing in other major countries, particularly Europe and Canada. We should be thankful for what we got."

"As far as I'm concerned, it still doesn't indicate that we're headed to a double-dip recession," adds Cardillo.

A preliminary read on corporate profits also showed their biggest gain in five years. The report showed that profits rose at a rate of 10.6% in the quarter, as layoffs and cost-cutting measures highlighted various earnings results during the quarter.

In its original iteration, the Cash-for-Clunkers program and government spending helped prop up results during the third-quarter.

Stocks were down on the day following a mix of economic data, as the Dow Jones Industrial Average recently fell 29 points to 10,422. The S&P 500 lost 2 points to 1104, and the Nasdaq dropped 11 points to 2165.

-- Written by Sung Moss in New York.