(Updated with corporate profits information, Fed economic outlook)

NEW YORK (

TheStreet

) -- The U.S. economy grew at a faster pace than previously estimated in the third quarter, according to the second estimate of GDP by the Bureau of Economic Analysis.

Real gross domestic product increased at an annual rate of 2.5% after rising 1.7% in the second quarter. In the advance estimate, real GDP growth was 2%. The upward revision in the estimates was expected, with analysts projecting GDP growth at 2.4%, according to consensus estimates from

Briefing.com

.

The revision reflected a higher rate of growth in personal consumption expenditure, exports of goods and services and real final sales of domestic products. The second estimate is based on more complete source of data than what was available at the time of the advance estimate. The government will release one more final estimate next month.

The acceleration in GDP in the third quarter was driven by a sharp deceleration in imports and acceleration in private inventory investment and personal consumption expenditure.

Real personal consumption expenditures, the biggest driver of GDP, increased 2.8% in the third quarter, compared with an increase of 2.2% in the second.

Private businesses increased inventories $111.5 billion in the third quarter, following increases of $68.8 billion in the second quarter and $44.1 billion in the first.Inventory growth, while a positive contributor to GDP is usually discounted by the markets as a sign of weakness in the economy because it represents unsold goods.

Real final sales, which excludes the impact of swings in inventory, increased by a faster rate of 1.2% in the third quarter, after rising 0.9% in the second.

Nonresidential fixed investment slowed down to 10.3% from 17.2% in the previous quarter. Exports climbed at a lower rate of 6.3% down from 9.1% previously. But imports sharply decelerated, growing 16.8% in the third quarter, significantly lower than 33% previously.

Government purchases and investment grew 8.9%, down from 9.1% in the second quarter.

According to the National Bureau of Economic Research, the "great recession" ended in June 2009. But the economic recovery has not been strong enough to generate jobs.

The U.S. economy expanded 3.7% in the first quarter, but sharply decelerated in subsequent quarters.

The

Federal Reserve

embarked on another round of quantitative easing earlier this month in a bid to boost growth and fight deflation. Markets have however remained skeptical of the effectiveness of the program.

Minutes of the Fed policy meeting released Tuesday afternoon showed signs of dissension between members on the benefits of quantitative easing. Members wrestled with the expected downward impact of quantitative easing on the dollar and the risk of inflation.

"Some participants noted concerns that additional expansion of the Federal Reserve's balance sheet could put unwanted downward pressure on the dollar's value in foreign exchange markets," the minutes said. "Several participants saw a risk that a further increase in the size of the Federal Reserve's asset portfolio, with an accompanying increase in the supply of excess reserves and in the monetary base, could cause an undesirably large increase in inflation. However, it was noted that the Committee had in place tools that would enable it to remove policy accommodation quickly if necessary to avoid an undesirable increase in inflation."

The Fed continues to have a dim outlook for the economy, revising the outlook for GDP growth in 2011 by 50 basis points to 3.3%.

Meanwhile companies continue to ratchet up profits. Profits from current production increased $44.4 billion in the third quarter compared to an increase of $47.5 billion. Domestic profits of financial companies increased $33.3 billion after decreasing $3.4 billion in the second. Domestic profits of nonfinancial corporations increased $18.6 billion after increasing $48.2 billion in the second quarter.

The rest-of-the-world component of profits decreased $7.5 billion in the third quarter, in contrast to an increase of $2.8 billion in the second, according to the report.

Businesses earned an annual rate of $1.66 trillion during the third quarter, the highest figure recorded (in nominal terms) since the government began keeping track over 60 years ago,

The New York Times

reported. Improvements in productivity and higher profits from overseas have helped drive profits in a sluggish economy, the report said.

-- Written by Shanthi Bharatwaj in New York

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