The third-quarter increase in GDP —the economy’s total output of goods and services — was the best performance since a 4.9 percent increase in the final three months of 2011.
Still, analysts expect that for the year, the GDP will expand only around 1.7 percent, down from the 2.8 percent growth of 2012. Much of that drop-off occurred because consumer spending was depressed by higher taxes that took effect last January and the government’s across-the-board spending cuts. The Congressional Budget Office has estimated those two factors shaved 1.5 percentage points from growth in 2013.
But the drag from the government is expected to lessen in 2014. Many analysts are looking for growth to hit 2.5 percent or better in 2014.
Outside the volatility caused by changes in stockpiles, many analysts say the economy has begun to improve in the current quarter. Steady hiring has lowered the unemployment rate to a five-year low of 7 percent. And much of the November data so far have been upbeat.
Consumer spending at retail businesses rose by the most in five months. Factories increased output for the fourth straight month, led by a surge in auto production. Builders broke ground on homes at the fastest pace in more than five years, strong evidence that the housing recovery is accelerating despite higher mortgage rates. Auto sales haven’t been better since the recession ended 4½ years ago. And the stock market is at all-time highs.
Analysts will pay close attention to consumer spending in the fourth quarter. It drives 70 percent of economic growth.
The government significantly boosted consumer spending in Friday’s revised data, increasing it to a 2 percent growth rate, up from just 1.4 percent in the previous estimate, which has been the slowest pace since late 2009.
Economists said Friday that the new-found strength in the third quarter was an encouraging development but the period was still dominated by an unsustainable buildup in inventories which will act as a drag on growth in the current quarter.