WASHINGTON — The U.S. economy powered its way to
a respectable growth rate of 3.5 percent from July through
September, outpacing most of the developed world and on track to
extend the momentum through the end of the year and beyond.
The result isn't a fluke.
It turns out the world's biggest economy did a lot of things
right in the wake of the Great Recession that set it apart from
other major nations. Those key decisions, particularly by the
Federal Reserve, appear to be paying off now.
An improving economy prompted the Fed on Wednesday to end its
stimulus known as quantitative easing. Launched during the
financial crisis in 2008, it was an unprecedented and aggressive
effort to revive a dormant economy through buying trillions in
Doug Handler, chief U.S. economist at IHS Global Insight,
credited the Fed and its landmark bond buying program with
helping pull the country out of the worst downturn since the
"Its greatest impact was instilling confidence in consumers
and the business community that Fed officials were determined to
do everything they could to stimulate growth," Handler said. "To
know you have the Fed pulling for you instills confidence."
The Fed's efforts have translated to robust job growth and an
economic recovery that looks to be solidifying.
The third quarter expansion was propelled by solid gains in
business investment, exports and the biggest jump in military
spending in five years, the Commerce Department said Thursday.
It followed a 4.6 percent expansion in the second quarter, which
represented a dramatic turnaround from the first three months of
the year when a harsh winter depressed activity.
Many economists say they are confident that the current
October-December period will be another solid quarter. They also
project that full-year growth for 2015 will hit 3 percent,
giving the economy the best annual performance since 2005, two
years before the Great Recession began.
"The economy does appear to be accelerating of late," said
Dan Greenhaus, an analyst with investment firm BTIG. He added
that the GDP report showed an economy "on a sounder footing
today than at any time over the last few years."
The U.S. landscape stands in contrast to other big economies
of the world.
Japan's GDP contracted at an annualized rate of 7.1 percent
in the April-June quarter.
Germany — Europe's traditional growth engine — risks falling
into recession — or growth so weak it holds back the entire euro
currency union's weak recovery. The French economy posted zero
growth in the first two quarters of the year and recently
revised down its growth forecasts for the year to a paltry 0.4
Momentum is decelerating even in China, which has posted
blistering figures in recent years. Growth in the world's No. 2
economy waned to a five-year low of 7.3 percent in the third
quarter, though the result falls roughly in line with Chinese
leaders' plans for a controlled slowdown.
The U.S. economy, meanwhile, is benefiting from a variety of
other factors beyond the Fed.
The country is relatively insulated from weakness overseas.
Exports account for less than 14 percent of U.S. activity, one
of the lowest such shares in the world.
It's American consumers who drive the U.S. economy. They
account for nearly 70 percent of the economy, and things are
looking up for them. The job market is healthier than it's been
in a while, with the unemployment rate at a six-year low of 5.9
percent. And falling gas prices frees up money for consumers to
spend on other things that help fuel growth.
The nation has significantly strengthened its financial
Sung Won Sohn, an economics professor at the Martin Smith
School of Business at California State University, said that
compared with other major economies, the U.S. has moved more
quickly to clean up problems in the banking sector and get
household balance sheets in better shape.
"The problem in Europe is that they let the problems fester
and get worse because they did not act as quickly as we did,"
To be sure, the U.S. isn't insulated from headwinds that
could snag progress. Volatility has unsettled financial markets
recently, and continuing global weakness is likely to drag
exports in the coming months.
"Going forward, the appreciation in the U.S. dollar and slow
growth in Europe and Asia are likely to once again make trade a
net-drag on American economic growth," said James Marple, senior
economist at TD Bank Group.
For the third quarter, consumer spending grew at a decent 1.8
percent annual rate, which economists described as steady but
unspectacular. The figure was slower than the 2.5 percent
increase in the spring quarter.
Also driving growth was an 11 percent rise in export sales,
far outpacing imports, which fell at a 1.7 rate. The smaller
trade gap added 1.3 percentage points to growth in the third
Stronger government spending added another 0.8 percentage
point to growth, with federal spending growing at a 10 percent
rate. It was the first positive contribution in more than two
years. Federal activity had been constrained by spending cuts
and last year's partial government shutdown.
Defense spending shot up at a 16 percent rate, the fastest
advance since a 17.4 percent gain in the second quarter of 2009.
Business spending on equipment grew at a 7.2 percent rate in
the third quarter, and residential construction grew at a 1.8
Thursday's report was the first of three estimates of the
gross domestic product, the economy's total output of goods and
The Federal Reserve noted the brightening U.S. prospects in
its statement Wednesday. It retained language in a statement
saying it didn't expect to raise its benchmark interest rate for
a "considerable time." But it also pointed to rising signs of
strength, including job gains and lower unemployment.
Paul Ashworth, chief U.S. economist at Capital Economics,
said that the latest GDP report showed "the Fed was right to
take a slightly more hawkish tone."