Newspaper article International New York Times

U.S. Growth Rate Beats the Forecasts ; 3.5% Expansion Is Linked to Federal Spending and a Exegovernment Spending, Exports and Exports, Surpasses Expectations

Newspaper article International New York Times

U.S. Growth Rate Beats the Forecasts ; 3.5% Expansion Is Linked to Federal Spending and a Exegovernment Spending, Exports and Exports, Surpasses Expectations

Article excerpt

The higher-than-expected bump in gross domestic product was driven in part by an unusual spurt of federal spending, concentrated in defense.

The United States government reported on Thursday that American economic output rose at a 3.5 percent annual rate in the third quarter, offering a strong sign that the economy's plodding growth may be picking up speed.

The higher-than-expected bump in gross domestic product -- a measure of all the goods and services produced -- was driven in part by an unusual spurt of federal spending, concentrated in defense, combined with robust exports and investment in business equipment.

"This is the strongest six-month interval we've had in 10 years," said Carl R. Tannenbaum, chief economist at the Northern Trust Company. "The pace of the expansion has clearly increased."

The performance of the economy during the summer months of July, August and September followed the second quarter's even more impressive 4.6 percent annualized growth rate. This sustained expansion was welcomed after a bitter winter that contributed to a disappointing 2.1 percent contraction, at an annualized rate, for the first three months of the year.

But the enthusiasm was tempered. John Canally, chief economic strategist for LPL Financial, called the latest gross domestic product figures confirmation that "we're doing O.K. here."

That was also the conclusion voiced on Wednesday by the Federal Reserve, which cited a strengthening labor market and decreasing concerns about the slow pace of inflation as reasons to close the books on its six-year, multitrillion-dollar bond-buying spree.

Government statisticians will revise Thursday's figure twice, first in November and then in December. Thus, the final measure of growth could end up being restated by as much as a percentage point in either direction, according to Pantheon Macroeconomics.

There were caveats in Thursday's figures, of course. Consumer spending, though up 1.8 percent, was weaker than some economists had expected, given recent job growth, falling gas prices and profits that wealthier households reeled in from the stock market.

"The components may not be as strong as the headline number shows," said Krishna Memani, chief investment officer at Oppenheimer Funds. The housing sector was also weaker than some economists had hoped.

Military spending, which rose a whopping 16 percent, is notoriously volatile, seesawing from one quarter to the next. Still, for nearly two years, government austerity has been a drag on the economy, and the 10 percent growth in federal spending reversed that trend, at least for one quarter. …

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