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Real gross domestic product--the output of goods and services produced by labor and property located in the United States--gained a moderate 2.7% in the third quarter, according to data issued this morning by the U.S. Commerce Department. That represented an upward revision from the initially estimated third-quarter gain of 2.0%. Expectations had been that the estimated rise in this latest quarter would have been a touch higher, at 2.8%. The gain in the second quarter was just 1.3%, underscoring the uneven nature of the business expansion.

Encouragingly, this was the best increase in GDP in nearly three years, and was brought about principally by stronger increases in inventory accumulation and exports than previously thought. This was offset by a lesser gain than earlier estimated in nonresidential fixed investment. In all, we need to go back to the fourth quarter of 2009 for a better quarterly showing.

The good news is the better aggregate performance. More sobering is the fact that even with this improved showing, the labor situation remains troubled. Specifically, job creation is still lackluster and the unemployment rate is lingering just below 8%, which is distressingly high for this late in the recovery.

Moreover, there is a good chance that fourth-quarter GDP will be up much less notably. For one thing, the inventory accumulation noted in the latest report will now have to be worked down; presumably, that process will start in the current three months. That retracement in stockpiles will detract from fourth-quarter GDP. Then, there was the tragic hurricane that struck the Northeast in late October. Our sense is that this storm will subtract 0.5%, or more, from growth in the present stanza. Then, there is the so-called fiscal cliff to contend with. Here, worries about that potential depressant are almost surely to hold back GDP in the period.

Taken as a whole, we now believe that growth will fail to reach even 1.5% in the quarter, most likely falling into a range of 1.2% to 1.5% for the three months.  On balance, this was a solid report, but the euphoria is likely to be short-lived.