US Economy Grew at 3.5% Annual Pace in Third Quarter

The nation's economic output rose at a 3.5 percent annual rate in the third quarter, the Commerce Department reported Thursday, offering another sign that growth is steady if unspectactular.

Analysts surveyed by Bloomberg had expected the gross domestic product, a measure of all the goods and services produced, to be 3 percent for the quarter.

Although bigger than expected, the result was not surprisingly a decline from the second quarter's impressive 4.6 percent annualized growth rate, which came after a bitter winter that contributed to the previous quarter's disappointing 2.1 percent decrease. Strong exports and private inventory investment helped pull the economy out of its first-quarter slowdown.

Those looking for reasons to be optimistic about the quarter already underway can point to falling gasoline prices, an unemployment rate that has declined below 6 percent, and perhaps most encouraging from this week, a report from the Conference Board showing that the consumer confidence index jumped in October to a seven-year high. That upbeat outlook could help push up consumer spending during the coming holiday season.

The Federal Reserve asserted its belief in the economy's underlying strength on Wednesday, announcing a halt to its six-year, multitrillion-dollar bond-buying program, ending one of its most pointed efforts to ignite the economy.

Still, the Fed continued to say it planned to keep short-term interest rates close to zero for a 'considerable time,' a sign that the central bank is proceeding with caution. In a speech in Boston this month, Janet L. Yellen, the Fed chairwoman, also expressed concern about a decline in the number of new businesses, which are traditionally a vehicle for Americans to get ahead.

Certainly, the stock market's unpredictable swings rattled investors recently. But skeptics may be more concerned about the effect of Europe's anemic growth on the American economy. Some economists worry that European policy makers and the European Central Bank are not doing enough to stimulate their sluggish economies. An announcement by the European Central Bank on Monday that it was buying 1.7 billion euros' worth of private assets was seen by many as too small an effort given the region's economic problems.

In the United States, expectations for the third quarter's growth figure had been creeping up in recent weeks. Carl Tannenbaum, chief economist at the Northern Trust Company, who had projected a 3.2 percent rise in gross domestic product, expected consumer spending to be mostly responsible for the growth, with lower- and middle-income families using the money they saved on gasoline and wealthier households spending gains they reeled in from the stock market.

Jim O'Sullivan, chief United States economist for High Frequency Economics, noted in a report before the release that 'jobless claims are low, consumer confidence is holding up despite the turmoil in the markets and core inflation continues to run at a pace around 0.5 points below the Fed's long-term goal.'

Government statisticians will revise Thursday's figure twice, first in November and then in December. Thus, the final measure of growth could end up being restated by as much as a percentage point in either direction, according to Pantheon Macroeconomics.

Lurking beneath all the statistics, however, is the insistent worry that even the most promising numbers are masking profound inequalities, as Ms. Yellen indicated in her Boston speech.

'It is no secret that the past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority,' she said. 'I think it is appropriate to ask whether this trend is compatible with values rooted in our nation's history, among them the high value Americans have traditionally placed on equality of opportunity.'

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