U.S. GDP Increases At Fastest Rate In Two Years In Q3

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Economic activity in the U.S. increased by more than expected in the third quarter, according to a report released by the Commerce Department on Friday.

The Commerce Department said real gross domestic product climbed by 2.9 percent in the third quarter after rising by 1.4 percent in the second quarter. Economists had expected 2.5 percent growth.

The stronger than expected GDP growth in the third quarter reflects the biggest increase since a 5.0 percent jump in the third quarter of 2014.

Paul Ashworth, Chief U.S. Economist at Capital Economics, said, "The bigger than expected 2.9% annualized gain in third-quarter GDP growth confirms that the economic recovery has regained some of the momentum lost within the last year."

"As such, this leaves the Fed firmly on track to raise interest rates in December and a hike at next week's FOMC meeting isn't entirely out of the question," he added.

A sharp jump in exports contributed to the stronger than expected GDP growth, with exports surging up by 10.0 percent in the third quarter after climbing by 1.8 percent in the second quarter.

Ashworth said some of the surge in exports was due to a one-off spike in soybean exports that will be reversed in the fourth quarter.

The notable increase in GDP was also partly due to a rebound in inventories, which contributed to growth for the first time in six quarters.

Consumer spending also contributed to the increase in GDP, although the pace of growth slowed to 2.1 percent in the third quarter from 4.3 percent in the second quarter.

Federal government spending and non-residential fixed investment also contributed positively to GDP growth in the quarter.

Meanwhile, the Commerce Department said the positive contributions were partly offset by negative contributions from residential fixed investment and state and local government spending.

The report also showed a 2.3 percent jump in imports, which are a subtraction in the calculation of GDP.

A reading on core consumer prices, which exclude food and energy prices, showed that the pace of price growth slowed to 1.7 percent in the third quarter from 1.8 percent in the second quarter.

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