an acceleration in the u.s. economy in recent months should relieve fears about the economic expansion losing steam, but the third-quarter improvement does little to change the trajectory of a long but weak path for growth. gross domestic product, the broadest measure of u.s. output, advanced at a 2.9% inflation-adjusted annual rate in the third quarter, the commerce department said friday. it was the strongest quarterly reading in two years after three straight quarters of sub-2% growth. but underlying data showed slower gains in consumer spending, still-sluggish business investment and a housing sector subtracting from growth last quarter. the third-quarter acceleration largely reflected a buildup of business inventories and what could be a one-time jump in exports due to better soybean shipments. <u+201c>the reality is not as encouraging as the 2.9% headline,<u+201d> said morgan stanley chief u.s. economist ellen zentner. in the expansion<u+2019>s eighth year, <u+201c>domestic factors in the economy are showing signs of slowing.<u+201d> both presidential campaigns were quick to seize on the last comprehensive look at the economy<u+2019>s health before the november election. democratic nominee hillary clinton <u+2019>s campaign said the numbers show <u+201c>real progress coming back from the crisis<u+201d> but added <u+201c>there is still more we need to do to build an economy that works for everyone.<u+201d> gop nominee donald trump <u+2019>s campaign called recent growth readings <u+201c>dismal,<u+201d> saying the economy has <u+201c>failed to deliver jobs, incomes, and opportunity.<u+201d> since the recession ended in mid-2009, the economy has grown at a 2.1% annual rate, making the current expansion the weakest on records back to 1949. while the end of the election cycle could ease some uncertainty about the path ahead, other questions are still hanging over the economy. at proto labs inc., a manufacturer in maple plain, minn., specializing in 3-d printing, rapid sales growth slowed over the past year, particularly for clients tied to industrial equipment and commodities, said chief executive vicki holt. <u+201c>there<u+2019>s just some cautiousness that i feel in the environment,<u+201d> she said. <u+201c>an increased number of customers tell us the reason they haven<u+2019>t bought yet is because projects have been delayed or canceled.<u+201d> a key measure of business investment rose at a historically soft 1.2% rate. firms increased spending on building structures but reduced outlays on equipment for the fourth straight quarter. the change in private inventories, a drag on output the five previous quarters, contributed 0.61 percentage point to the overall growth rate in the third quarter. exports increased at a 10% rate, the best gain in nearly three years, outweighing a smaller import increase. separate data suggested shipments of agricultural products, especially soybeans, supported the latest gain. <u+201c>some of that surge was due to a one-off spike in soybean exports,<u+201d> said paul ashworth, chief u.s. economist at capital economics. <u+201c>but it is still a welcome sign that the dollar appreciation in 2014 and 2015 is no longer weighing on exporters.<u+201d> consumer spending advanced at a 2.1% pace in the third quarter, half the rate of the prior quarter, but still a driver of growth. rowpar pharmaceuticals inc. chief executive james ratcliff said sales to canada and australia have increased recently, and he expects domestic consumers to drive sales of the scottsdale, ariz., firm<u+2019>s closys toothpaste and rinses, which sell at a premium to other national brands. <u+201c>we have absorbed the currency fluctuations without difficulty,<u+201d> he said. <u+201c>i expect u.s. consumer spending on discretionary items to continue because there is a little latitude generated by lower prices paid at the gas pump, modest wage growth and more people added to the workforce.<u+201d> the latest data suggests the economy this year isn<u+2019>t likely to top 2015<u+2019>s 2.6% growth rate, the best annual reading of the expansion. the economy has failed to grow at better than a 3% pace in any year since 2005, and the nonpartisan congressional budget office projects gdp to grow at around 2% annually through 2026. and while output advanced at a quicker rate last quarter, hiring was also stronger than in the second quarter. that could restrain improvement in worker productivity, which has fallen for three straight quarters through the middle of this year, and has been weak for much of the expansion. productivity is a key ingredient in determining future growth in wages, prices and overall economic output. a separate measure from the labor department on friday showed compensation advanced at a steady<u+2014>but not accelerating<u+2014>rate, consistent with a slowly tightening labor market. the most recent gdp gain alongside solid employment data improves the <u+201c>optics<u+201d> of the federal reserve raising its benchmark interest rate in december, said mrs. zentner, morgan stanley<u+2019>s economist. she and many other economists expect the central bank to stand pat next week. corrections & amplifications: the gross domestic product report was released on friday. an earlier version of this article online incorrectly stated the report came out on thursday. (10/28) <u+201c>when we look at the path after december, the data points to extreme gradualism,<u+201d> she said. <u+201c>gradual could mean one hike per year.<u+201d> write to eric morath at eric.morath@wsj.com
u.s. economy roars back, grew 2.9% in third quarter - wsj
eric morath