The economy picked up a bit of speed in the summer quarter, growing at a healthy 2.8 percent rate after rising by 2.5 percent in the spring, the Commerce Department reported Thursday.
The unexpectedly robust performance suggested that the economy is weathering well the across-the-board cuts in federal spending that cut deeply into defense and domestic discretionary programs beginning in March.
Every sector of the economy grew during the summer except the federal government. And the federal cuts were offset some by a 1.5 percent jump in state and local spending, showing that the government sector outside Washington has regained its footing with the revival of state tax revenues and is now contributing to the economy’s momentum.
While consumer and business spending grew tepidly during the summer, the star performer for the economy continued to be housing, which soared by 14.6 percent. Housing is expected to soften in the fall quarter, however, as a result of a sharp rise in mortgage rates over the summer.
Added to news that unemployment applications fell to prerecession levels last week, the faster-than-expected growth provided a short-lived boost to global markets Thursday. Stocks initially rose on the news, but later fell as investors realized that the stronger-than-expected economy might prompt the Federal Reserve to start pulling back on its easing campaign.
The Dow Jones industrial average plunged by 153 points Thursday from a record high to 15,594, while other major stock indexes lost more than 1 percent of their value.
Economists were cheered by the economy’s pick-up in momentum, but were cautious in interpreting the report.
“The data suggests the recovery was just becoming self-sustaining in the third quarter,” said Justin Wolfers, an economics professor at the University of Michigan.
But he added that the momentum that was building in the economy at summer’s end was likely broken in the final quarter of the fiscal year as a result of the 16-day government shutdown and debt crisis that began Oct. 1.
“Congress punched it in the face in the fourth quarter,” he said.
The better growth seen in the summer also was driven in part by an accumulation of inventories by businesses, so it probably overstated the health of the economy, he said.
“Don’t get too excited … Actual demand for stuff isn’t so strong,” he said, and the rate of consumer spending growth, at 1.5 percent, was the slowest in two years.
“The economy temporarily has gained altitude on too much inventories,” said Sung Won Sohn, at economics professor at California State University Channel Islands.
“Consumer spending, the lion’s share of the economy, slowed as they try to pinch pennies and stretch their limited income. The holiday shopping season could be lackluster,” he said.