The U.S. economy grew at a 3.5 percent annualized rate between July and September, the government said Thursday morning, providing fresh hope that a wobbly recovery could be gaining some stability.
The latest gross domestic product figure, released by the Commerce Department, slightly exceeded analyst predictions and caps America’s strongest six-month period of expansion since 2003. It also follows the Federal Reserve decision Wednesday to end its bond-buying program, a sign of confidence that the economy no longer needed its “booster shot” injection.
Still, some economists said the third-quarter growth numbers had a misleading shine. Business investment and consumer spending, solid throughout the recovery, dipped slightly from the second quarter. Meantime the economy was boosted by two surprise factors — a 16 percent spike in national defense expenditures and a shrinking trade deficit. Defense spending is notoriously unpredictable, with the potential to be skewed by one major order. Trade, too, can’t be counted on for long-term growth, particularly as China loses some of its steam and Europe slides toward another recession.
“The headline number — 3.5 percent — is awfully good,” said Josh Bivens, research and policy director at the Economic Policy Institute. “But once you start digging into it, there’s not a ton of evidence we’ve actually shifted into a higher gear.”
The United States is still well away from a full-scale recovery, but growth is at least becoming more reliable. In four of the past five quarters, the economy has expanded at a rate of 3.5 percent or greater. Consumption and fixed investment, taken together, is up 2.8 percent over the last year. That figure, which doesn’t include some of the volatile components that influence GDP, is seen as a more reliable barometer of the economy’s trajectory.
GDP growth could dip slightly in the final quarter, but “we believe that the expansion is becoming more and more self- sustaining,” Wells Fargo said in a note to investors.
U.S. officials emphasized that the latest GDP figure, a measure of all goods and services produced, outpaced those of other advanced countries and reflected the country’s improving labor market and growing oil and gas supply.
“Since the financial crisis, the U.S. economy has bounced back more strongly than most others around the world, and the recent data highlight that the United States is continuing to lead the global recovery,” Jason Furman, chairman of the White House’s Council of Economic Advisers, said in a statement.
Some economists say the latest GDP figure provides a truer sense of economic health than earlier quarterly figures this year, which veered from very cold to very hot. Between January and March, the economy contracted at an annual rate of 2.1 percent — the sharpest decline since the depths of the Great Recession. Then, in the three month following, GDP grew at a rate of 4.6 percent, a level not topped since eight years ago.
Most analysts now say that the first quarter slide stemmed from a horrid East Coast winter that kept consumers indoors. They say that the second quarter was buoyed by a bounce-back effect, a release of all that pent-up demand for cars and homes. The third quarter ended up between those two extremes, a middle ground that reflects a complicated period in which payrolls grew steadily, stocks showed some volatility, and concerns mounted about a European economy sliding into recession.
The GDP is still subject to revision. Consumer spending drives about two-thirds of the measure and climbed 1.8 percent in the third quarter, compared with 2.5 percent in the second. Economists had been hoping to see a greater surge in household spending, given that declining gas prices helped fatten their pocketbooks.
Spending on new homes also contributed little to growth in the latest quarter. Such investment — which often accompanies recoveries — surged in 2012 and into 2013, but now appears to be fading.
The U.S. economic recovery is now strong enough that the Fed voted on Wednesday to end its long-running stimulus campaign this month. The Fed has bought more than $1 trillion in long-term bonds over the past two years in hopes of boosting job growth. During that time, the unemployment rate has fallen nearly two percentage points to 5.9 percent and hiring has surged to an average of more than 200,000 jobs a month this year.
"There has been a substantial improvement in the outlook for the labor market," the Fed said in an official statement released Wednesday. It added that the central bank also sees "sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment in a context of price stability."
The Fed has also kept its target for short-term interest rates at zero for the past six years. Officials said they will calibrate the timing of the first rate increase to the health of the economy. A stronger recovery could push them to move more quickly, while slower growth could delay any move.
Ylan Q. Mui contributed to this report.