US Economy Grows 3.5% In Q3

The U.S. economy expanded by an annualized 3.5 percent in the July-to-September period, according to an advance estimate released Thursday by the Commerce Department. The consensus of analyst estimates from Bloomberg forecast only a 3 percent rise.

Following 4.6 percent annualized growth in the second quarter, the six-month average growth is the economy's strongest in more than a decade. But part of the second quarter's gain was pent up demand after a harsh winter slowed spending. GDP fell 2.1 percent in the first quarter.

Stronger consumer spending and foreign demand for American goods, business investment and government spending fueled the growth in gross domestic product. Imports, which subtract from GDP, decreased by 1.7 percent. Exports, which add to GDP, increased by 7.8 percent.

Government spending jumped 4.6 percent, led by a 16 percent spike in defense spending. Business investment increased 5.5 percent, led by a 7.2 percent rise in equipment purchases. More modest growth in home building (1.8 percent) should pick up over the next few years because housing starts are running below population increases, and growth in income (2.7 percent) should pick up in the fourth quarter, Paul Ashworth, chief U.S. economist for Capital Economics, said in a note Thursday.

"Looking ahead to Q4, we see a similar rate of GDP growth or a touch lower," Goldman Sachs analysts wrote in a note before the GDP release.

The better-than-expected growth supports the Fed's view of "substantial improvement in the labor market," cited Wednesday in its policy statement that announced the end of its stimulus program.