Economy grew 2.8% in the third quarter

• Economy little affected by threat of Oct. 1 government shutdown
• Consumer spending rose at annual pace of 1.5%25
• Some economists see weaker growth in Q4

The economy grew at an unexpectedly-strong 2.8% annual rate in the third quarter, but details of Thursday's report soon had economists downplaying the headline and warning that the news actually points to slower growth late this year.

The performance beat the average estimate of 2% annualized growth, as predicted in a survey of economists by Bloomberg News. It represents an acceleration from 2.5% growth in the second quarter.

The details of the numbers are weaker than the headline figure, said David Berson, chief economist at Nationwide Insurance. About a quarter of the gain came from an unanticipated buildup in inventories, he said. Growth in consumer spending was slower than in the second quarter, business investment in new equipment dropped and investment in housing decelerated as interest rates rose, he said. Factoring out the inventory gains, the economy grew at a 2% rate in the quarter, pretty much as forecast, he said.

"If you look closely, what all this says is that we're probably set up for a weaker fourth-quarter number,'' Berson said, who predicts 1.5% annualized growth in the fourth quarter.

The positive parts of the report were a 9.5% jump in private investment, mostly on houses and commercial buildings, and a tripling of the gain in state and local government spending. Government outlays below the federal level rose at a 1.5% annual rate, the Commerce Department said. State and local spending has fallen every year since 2009, and rose at a 0.4% annual rate in the second quarter.

Consumer spending actually rose more slowly than in the second quarter, advancing at a pace of only 1.5% a year, the government said. Consumers boosted what they spent on services by only 0.1%.

The report shows little impact from federal government spending cuts under the sequstration process, said Chris Rupkey, chief financial economist at Bank of Tokyo -Mitsubishi UFJ. But the weakness in consumer spending growth is puzzling, he added.

"Maybe growth of 2% is as good as it gets for now, especially if the Washington uncertainty is limiting business capex,''' Rupkey said.

Inflation picked up during the quarter, but remained below the levels the Federal Reserve has set as a guideline for potential tightening of monetary policy. Inflation reached a 1.8% annual rate, including 1.5% after excluding volatile food and energy prices. The Fed has set an inflation target of 2%.

But the weak consumer spending growth means the Fed isn't likely to tighten money soon, Regions Financial chief economist Richard Moody said,

"The softer details do not point to meaningful improvement in the labor market,'' Moody wrote in a research note. ``Tomorrow's October employment report would carry more weight.''