By Nick Timiraos and Eric Morath
WASHINGTON-The U.S. economy expanded steadily again during the
third quarter, a sign of sustained growth fueled by American
consumers and businesses despite mounting concerns about the health
of overseas economies.
Gross domestic product, the broadest measure of goods and
services produced across the economy, advanced at a seasonally
adjusted annual rate of 3.5% in the third quarter, the Commerce
Department said Thursday. Economists surveyed by The Wall Street
Journal had forecast growth at a 3.1% pace for the quarter.
The report showed broad-based gains across the economy despite a
drop in inventories. Trade boosted growth as imports fell, while
government spending, which has been a drag on growth over the past
three years, turned up during the quarter. Consumer spending and
business investment held steady, though housing continues to
underwhelm.
The growth follows an uneven first half of the year. The economy
expanded at a 4.6% annual pace in the second quarter after it
contracted at a 2.1% pace during the first quarter.
Thursday's report showed that inflation-adjusted GDP rose 2.3%
from one year earlier. Economic growth during the current expansion
has been modest by the country's historical standards, and yet it
may prove to be the envy of many other advanced economies right now
outside of China.
One question now is how the economy will fare amid a global
growth slowdown that has strengthened the dollar, hurting U.S.
exporters, even as a broad swath of industry and consumers benefit
from falling oil prices. Thursday's report showed that trade during
the third quarter strongly boosted the economy, adding 1.32
percentage points to GDP growth, as imports fell and exports
rose.
The Federal Reserve said Wednesday it would end its long-running
bond-purchase program and, in its policy statement, said it saw
"sufficient underlying strength in the broader economy" to support
its mandate to maintain low unemployment and stable pricing.
The central bank also said that it saw "substantial improvement"
in the outlook for the labor market since the stimulus program was
launched two years ago. U.S. employers have added an average of
227,000 jobs so far this year, and job growth over the last 12
months is running at its fastest pace in more than eight years.
But the economic expansion, officially entering its sixth year,
has felt unsatisfying to a broad swath of Americans because wages
are barely rising ahead of inflation following a painful recession
that saw the value of homes-for many Americans, their largest
source of wealth-fall sharply and unemployment rise suddenly.
The details of Thursday's report showed household spending
advanced at a 1.8% rate, down from the second quarter's 2.5% pace.
Personal consumption, which accounts for the majority of economic
activity, was led by sales of durable goods such as cars and
recreational vehicles.
Private inventories fell during the quarter, subtracting 0.57
percentage points from growth. Inventories grew sharply in the
second quarter.
Real final sales, a measurement of GDP that excludes changes to
inventories, expanded at a 4.2% pace. That compares to a gain of
3.2% in the second quarter.
Business investment on items such as equipment, buildings and
intellectual property rose at a 5.5% pace during the
July-to-September period, following a 9.7% increase in the prior
quarter.
Spending on home construction and improvements grew at a 1.8%
rate in the second quarter. It had advanced at an 8.8% annual rate
in the second quarter after contracting in the last quarter of 2013
and the first quarter of 2014. New-home construction is barely
running ahead of last year's levels following a slowdown that hit
builders one year ago.
Exports rose at a 7.8% rate while imports, which subtract from
growth, fell 1.7%.
Several economists have said they could revise down their
forecasts for growth next year as exporters face a stronger dollar
and weaker demand in Europe. The 18-nation eurozone risks entering
its third recession in five years, while concerns are also mounting
about a slowing Chinese economy and Japan's struggle to escape
decades of stagnation.
U.S. government spending, meanwhile, added to third-quarter
growth, up at a 4.6% pace this summer, the most in five years.
Federal outlays rose for the first time in two years; defense
spending rose at a 16% rate while nondefense spending grew at a
0.5% rate. Spending at the state and local level rose at a 1.3%
rate.
The GDP figures are adjusted for inflation. The price index for
personal consumption expenditures-the Fed's preferred measure for
inflation-rose at a 1.2% annual rate in the third quarter, down
from the 2.3% annualized increase during the second quarter and
below the Fed's 2% inflation target. The core inflation rate--which
excludes volatile moves in food and energy prices--was up 1.4%
versus a 2.0% gain the prior quarter.
The Commerce Department's release on GDP can be found at:
http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm
Write to Nick Timiraos at nick.timiraos@wsj.com and Eric Morath
at Eric.Morath@wsj.com.