U.S. GDP grows at better-than-expected 3.9% pace in third quarter

U.S. economy in second and third quarters produced the strongest back-to-back expansion since 2003

While economic growth in much of the world slowed, the U.S. recovery hummed through the summer at an unexpectedly robust pace and posted its best six-month performance in 11 years.

The nation's gross domestic product, the broadest measure of economic activity, grew at a 3.9% annual rate in the third quarter of the year, the Commerce Department said Tuesday.

The figure was unexpectedly better than the 3.5% annual rate the government reported in its first estimate last month. Economists had forecast the growth rate would be revised down to 3.3%.

Instead, the new data combined with 4.6% second-quarter annualized growth to produce the strongest back-to-back expansion since 2003.

"The nation's economic prospects are improving," said Scott Hoyt, senior director of consumer economics at Moody's Analytics.

"However, the divergence between the U.S. economy and that of much of the rest of the world is striking," he said.

Japan said last week that it was in another recession, its fourth since 2008. The Eurozone is flirting with recession as well, Hoyt said. And growth is slowing in China and other key emerging economies.

But strong consumer spending is boosting the U.S. economy, which has bounced back after it sharply contracted in the winter, largely because of severe weather.

Consumer spending increased 2.2% in the third quarter, better than the 1.8% increase originally estimated last month.

Spending growth slowed in the third quarter after increasing 2.5% in the second quarter, but that was expected, as was the broader slowing of growth, because pent-up demand from the winter drove much of the spring's economic activity.

Other factors in the third-quarter revision were a smaller than initially estimated drop in private business inventories and a larger increase in nonresidential investment, the Commerce Department said.

Federal government spending also played an important role in third-quarter growth, increasing 9.9%. Those expenditures decreased 0.9% in the second quarter.

In another sign consumers are feeling better about the economy, household debt rose $78 billion, or 0.7%, in the third quarter to $11.7 trillion, the Federal Reserve Bank of New York reported Tuesday.

The increase — the fourth in the last five quarters — was fueled by auto loans.

Consumers took out $105 billion in loans for vehicles in the third quarter, the most in nearly 10 years, the New York Fed said. It was the 14th straight month auto loans have increased.

Mortgage, credit card and student loans also rose, the New York Fed said.

"In light of these data, it appears that the deleveraging period has come to an end and households are borrowing more," said Wilbert van der Klaauw, the agency's senior vice president and economist.

Still, household debt remains about $970 billion below the peak it reached in the third quarter of 2008 when the financial credit crisis hit.


Copyright © 2016, Los Angeles Times