U.S. economic growth surges past estimates in Q3

The U.S. economy grew at its fastest pace since 2003 in the third quarter on stronger consumer and business spending.

Gross domestic product expanded at a seasonally adjusted annual rate of 5% in the three months ended Sept. 30, higher than the 3.9% previously estimated, the Commerce Department said Tuesday. The reading was the government's third and final estimate.

Economists expected growth to be revised up to a 4.3% pace.

Consumer spending shot up 3.2%, much faster than the 2.2% previously estimated, led by higher health care outlays.

A measure of business investment rose 8.9%, including a healthy 11% rise in equipment spending, as companies continued to replace worn equipment and expand capacity to meet rising demand.

Government spending also increased more rapidly than estimated at 9.9%, bolstered by a big jump in defense expenditures.

And business stockpiling slowed less than previously estimated.

The gains more than offset a modest downward revision in export growth to 4.5%.

In the current quarter, a strengthening dollar is expected to hamper exports, while the government sharply pulls back defense expenditures. Although that will slow the overall economy, lower gasoline prices should sustain the surge in consumer spending into the fourth quarter, lifting economic growth by a still solid 2.5% to 3%, said Doug Handler, chief U.S. economist of IHS Global Insight.

That has prompted Handler to raise his economic growth forecast for all of 2014 to 2.4% from 2.2% — a figure held down by a weather-related 2.1% contraction in the first quarter. Many economists expect growth to pick up to 3% or higher next year as faster employment and wage growth bolsters consumption and business investment accelerates.

Job growth totaled 321,000 in November, nearly a two-year high. It has averaged 241,000 a month this year, 47,000 more than last year, as the U.S. remains a bright spot in a sluggish global economy.