Indiana, PA - Indiana County

Economy grows at surprising 2.8%

by MARTIN CRUTSINGER AP Economics Writer on November 07, 2013 10:39 AM

WASHINGTON — The U.S. economy expanded at a 2.8 percent annual rate from July through September, a surprising sign of strength ahead of the 16-day partial government shutdown. Much of the growth came from a surge in business restocking.

Home construction also rose and state and local governments spent at the fastest pace in four years. But businesses spent less on equipment, federal spending fell and consumers spent at a slower pace, troubling signs for the final three months of the year.

Overall, growth increased in the third quarter from a 2.5 percent annual rate in the April-June period to the fastest pace in a year, the Commerce Department said today. The third-quarter outcome was nearly a full percent stronger than most economists had predicted and shows the economy was picking up speed this summer. Analysts expect the shutdown will slow growth in the October-December quarter.

Consumers stepped up spending on goods. But overall spending weakened to a 1.5 percent annual rate, down from the second quarter’s 1.8 percent pace. That’s because service spending was essentially flat, in part because of a cooler summer that lowered utility spending.

Spending by consumers is critical to growth because it drives roughly 70 percent of economic activity. Higher taxes this year and slow wage growth have weighed on consumers’ wallets since the start of the year.

Businesses boosted their stockpiles in the third quarter. That contributed 0.8 percentage point to growth, double the amount from inventory building in the second quarter.

That suggests many companies anticipated healthy spending by consumers and businesses.

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