WASHINGTON -- The U.S. economy grew at a 3.5 percent annual rate in the July-September quarter, the fastest pace in two years, the Commerce Department said Thursday. But economists don't expect the growth spurt to last.
The gain in the gross domestic product -- the economy's total output of goods and services -- came from added strength in consumer spending, business investment and the government sector, the report said. The government previously had estimated last quarter's annual growth rate at 3.2 percent.
Thursday's GDP report "paints a picture of a healthy consumer, likely fueled by ongoing gains in employment, modest increases in wages and solid balance sheets," said Michael Gapen of Barclays.
The economy's acceleration last quarter marked a sharp pickup from the tepid annual growth of 0.8 percent in the first quarter and 1.4 percent in the second. Growth is expected to slow to a roughly 1.5 percent annual rate in the October-December quarter, reflecting in part less consumer spending and less business stockpiling.
Growth for the entire year, economists say, is likely to be around 1.5 percent. That would be down from 2015 and would be the weakest performance since the economy shrank 2.8 percent in 2009 at the depths of the worst economic downturn since the 1930s. The recovery began in mid-2009, but growth has averaged just over 2 percent, the weakest expansion in the post-World War II period.
President-elect Donald Trump had criticized the sluggish pace of growth during the campaign and said his economic policies would accelerate annual GDP growth to 4 percent or better. To do that, Trump said he would eliminate many government regulations, increase spending on the nation's aging infrastructure and cut taxes.
Most economists don't think 4 percent growth is realistic, given a chronic slowdown in worker productivity and a slower-growing U.S. workforce attributed in part to retiring baby boomers. Many of the forecasters expect growth of around 2.5 percent next year, though they say that estimate could rise if Trump wins congressional support for much of his economic program.
Thursday's report was the government's third and final estimate of GDP growth for the July-September quarter. The upward revision mainly reflected stronger consumer spending, which grew at a 3 percent annual rate, more than the 2.8 percent pace that was estimated a month ago. Consumer spending is closely watched because it accounts for about 70 percent of economic activity.
The government also upgraded its estimate for business investment: It showed an increase at a 1.4 percent annual rate, up from a much smaller 0.1 percent rate in the previous estimate.
Government spending also was revised up to show growth at a 0.8 percent annual rate, an increase that reflected a smaller drag from cutbacks at the state and local level.
The Federal Reserve last week raised a key interest rate by a quarter of a point, just the second increase in the past decade. Fed officials say they think they can begin gradually to raise interest rates as they near their goals for full employment and inflation increases by about 2 percent a year.
In public comments last week, Fed Chairman Janet Yellen made no predictions about Trump's economic program. But Fed officials forecast that they would raise rates three times in 2017, up from their previous forecast of two changes.
Consumer spending in the U.S. rose less than forecast in November as after-tax incomes adjusted for inflation declined for the first time since October 2013.
Purchases increased 0.2 percent after rising a revised 0.4 percent in October, Commerce Department figures showed Thursday. The median forecast in a Bloomberg survey called for a 0.3 percent advance. Real disposable income, or the money remaining after taxes, decreased 0.1 percent, reflecting a decrease in wages.
The report corroborates lackluster retail-sales data earlier this month, indicating household consumption is probably cooling in the fourth quarter. The report also showed nominal income was little changed after accelerating in October.
"Income has been restrained by still subdued wages," said David Sloan, a senior economist at 4CAST-RGE in New York. "We were expecting a weak result because payroll earnings and retail sales were both quite subdued."
Wages decreased 0.1 percent in November after a 0.5 percent increase the previous month.
More Americans sought unemployment benefits last week, but the number of applications remains at a low level that suggests companies are still hiring.
Weekly applications for unemployment aid rose 21,000 to a seasonally adjusted 275,000, the Labor Department said Thursday. That is the highest figure since June.
The number of people receiving benefits ticked up 15,000, to just over 2 million. That's down 7 percent from a year earlier.
Applications for unemployment benefits, a proxy for layoffs, have been below 300,000 for 94 straight weeks. That's the longest streak since 1970.
Despite last week's increase, the figures still point to a healthy job market. Employers have added a solid 180,000 jobs a month on average this year. That's enough to push down the unemployment rate over time.
Last month, the unemployment rate fell to a nine-year low of 4.6 percent.
Some of last week's increase could reflect seasonal trends. Layoffs typically rise in winter when construction sites close and hotels and restaurants at tourist sites cut back on their staffing. The government seasonally adjusts for those trends but does not always do so perfectly.
Information for this article was contributed by Martin Crutsinger and Christopher S. Rugaber of The Associated Press and by Michelle Jamrisko of Bloomberg News.
A Section on 12/23/2016