US economic growth accelerated in the third quarter as a last minute spurt in consumer spending and a surprise turnaround in government outlays offset the first cutback in business investment in more than a year.
Gross domestic product grew at a 2 percent annual rate, the US Commerce Department said on Friday in its first estimate of the third quarter, a pick-up from the second quarter’s 1.3 percent pace. However, to make substantial headway cutting the jobless rate, the economy needs to grow by more than a 2.5 percent pace over several quarters.
The growth was a bit better than economists had expected, in part because of a surge in government defense spending, which was not expected to last. Defense spending rose at its fastest pace in three years, and combined with the rise in household consumption and a jump in home building to strengthen domestic demand.
“The economy still has only weak forward momentum,” said Nigel Gault, chief US economist at IHS Global Insight in Lexington, Massachusetts. “Some underlying fundamentals are improving, but uncertainty at home and abroad is holding back the business sector.”
Since climbing out of recession, the US economy has faced a series of headwinds ranging from high gasoline prices to the debt turmoil in Europe and, lately, fears of US government austerity.
White House adviser Alan Krueger said the GDP report underscored the need to extend tax cuts for the middle class and small businesses, as US President Barack Obama has proposed. Obama’s Republican challenger, Mitt Romney, described it as evidence of the president’s failed policies.
In the third quarter, consumers shrugged off the impending sharp cuts in government spending and higher taxes that are due early next year and went on a shopping spree, buying automobiles and snapping up Apple Inc’s iPhone 5.
Consumer spending, which accounts for about 70 percent of US economic activity, grew at a 2 percent rate after increasing 1.5 percent in the second quarter.
A separate private-sector report showed consumer sentiment rose this month to its highest point in five years, another sign that households are little worried by the fiscal cliff at year-end that will raise income taxes.