The U.S. economy grew at a 3.5% annual pace in the third quarter, aided by a surge in exports and a big jump in military spending, the government said Thursday. Economists polled by MarketWatch had predicted gross domestic product would expand by a seasonally adjusted 3%. The increase in consumer spending, the main source of U.S. economic activity, slowed to a 1.8% annual pace from 2.5% in the prior quarter. Business investment on equipment, while up 7.2%, also decelerated, as did outlays on housing construction. Yet exports surged 7.8% while imports dropped 1.7%, making trade the biggest contributor to economic growth in the third quarter. A 10% jump in federal spending, mostly on Pentagon hardware, also bolstered growth. It was the biggest increase in federal spending since 2009, when the Obama administration put in place a huge economic stimulus package. Inventories, meanwhile, rose by a smaller $62.8 billion vs. $84.8 billion in the prior quarter and were a drag on growth. Inflation as measured by the PCE index rose at a 1.2% annual rate, down from 2.3%, as falling energy prices work to keep price pressures under wraps. The core PCE that excludes food and energy climbed at a 1.4% clip. The government will issue an updated look at GDP in another month.
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