U.S. Economy Grew 5% in Third Quarter, Its Fastest Rate in More Than a Decade

By NELSON D. SCHWARTZ DEC. 23, 2014



Shoppers at a Century 21 department store in Philadelphia. Higher consumer spending and business investment helped accelerate economic growth last quarter. CreditMatt Rourke/Associated Press

The American economy grew last quarter at its fastest rate in more than a decade, bolstered by robust spending among consumers and businesses alike.

Over July, August and September, economic output rose at an annual rate of 5 percent, the Commerce Department said Tuesday, a huge revision from its earlier estimate of 3.9 percent.

The revision was led by an uptick in investment by businesses, a force for growth in most economic recoveries but one that has lagged until recently in the present one.

Higher consumer spending and a healthier trade balance also helped, with the 5 percent rise making the third quarter the strongest since the summer of 2003.

Although the growth rate is expected to decelerate somewhat in the current fourth quarter, the improved view in the rearview mirror corresponds with other, more recent evidence that the recovery is finally gaining sustained power more than five years after it began.

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Unemployment has been steadily falling, and payrolls grew by more than 300,000 last month, a significantly better-than-expected reading. Similarly, consumers have gotten a big boost recently with the steep fall in gas prices since the summer. That is expected to lift crucial holiday retail sales this month.

“Consumption growth appears to have accelerated further in Q4, with plunging gasoline prices shifting upside to more discretionary areas,” said Ted Wieseman, an economist with Morgan Stanley, in a note to clients after the revised figures on economic growth were released.

Despite these and other signs of faster growth, the Federal Reserve remains cautious about raising short-term interest rates from near zero, where they have been since the depths of the financial crisis in 2008.

The central bank is expected to raise rates in mid-2015, but signaled last week that it would remain patient in order to confirm that faster growth looks sustainable and will translate into increased hiring over the long-term.

The Fed’s accommodative stance set off a huge rally on Wall Street last week, and stocks rose again Tuesday morning in early trading. For the first time, the Dow Jones industrial average crossed the 18,000 mark.

http://www.nytimes.com/2014/12/24/bu...5-percent.html