October 30, 2014 10:20 AM, EDT

Economy Grew 3.5% in Third Quarter


The economy in the U.S. expanded more than forecast in the third quarter, capping its strongest six months in more than a decade, as gains in government spending and a shrinking trade deficit made up for a slowdown in household purchases.

Gross domestic product grew at a 3.5% annualized rate in the three months ended September after a 4.6% gain in the second quarter, Commerce Department figures showed in Washington. It marked the strongest back-to-back readings since the last six months of 2003. The median forecast of 87 economists surveyed by Bloomberg News called for a 3% advance.

“The fundamentals behind the consumer are improving as job growth gains traction,” Russell Price, senior economist at Ameriprise Financial Inc. in Detroit, said before the report. “And with consumer confidence rising, that is a clear indicator that consumers are feeling better about the economy.”

Forecasts in the Bloomberg survey of economists ranged from 2.1% to 4%. The estimate is the first of three for the quarter, with the other releases scheduled for November and December when more information becomes available.

The report on third-quarter growth is the last major economic indicator before next week’s mid-term election, in which Republicans are expected to expand their majority in the House and perhaps net the six seats they need to take control of the Senate.

President Barack Obama’s fellow Democrats have struggled against the headwinds of his underwater approval rating, which has been mired below 45% in recent polls, and stagnant wages.

The second quarter’s 4.6% jumped reflected a rebound from a 2.1% slump in the first quarter that partly reflected a harsh winter.

“The 4.6% was largely a rebound from the very difficult weather in the first quarter,” Price said before the report. “Now the economy is still maintaining a pretty good pace off of that rebound.”

Consumer spending, which accounts for almost 70% of the economy, climbed at a 1.8% pace last quarter after growing at a 2.5% rate in the previous three months, the report showed.

The gain in household consumption compared with a 1.9% median forecast in the Bloomberg survey. Purchases added 1.2 percentage points to growth.

Government spending climbed at a 4.6% pace, the most since the second quarter of 2009, the report showed. The pickup reflected a rebound in defense outlays.

The trade gap narrowed to $409.9 billion from $460.4 billion in the second quarter as imports dropped, reflecting fewer purchases of foreign oil and consumer goods. The narrowing deficit added 1.3 percentage points to GDP.

Inventories grew at a slower pace, subtracting almost 0.6 percentage points from growth. Excluding stockpiles, so-called final sales climbed at a 4.2 % pace last quarter, the most since 2010.

The trade gap and inventories are two of the most volatile components in GDP calculations, and can show significant revisions in subsequent reports.