Data shows improving U.S. economy

WASHINGTON (AP) ― The U.S. economy grew at a sizzling 5 percent annual rate in the July-September period, the fastest in more than a decade, fueled by higher consumer spending and business investment.

In another sign of an improving economy, the number of Americans applying for unemployment benefits has reached its lowest level in seven weeks.

In its report Tuesday, the Commerce Department sharply upgraded its estimate of third-quarter growth from its previous 3.9 percent figure. Much of the increase came from consumer spending on health care and business spending on structures and computer software.

The economy has benefited in recent months from sharply lower energy prices. Cheaper fuel has given consumers and businesses more money to spend on other goods and services that drive growth.

Last quarter’s economic expansion was the fastest since the summer of 2003, and it followed a 4.6 percent annual growth rate in the April-June quarter. The government separately reported Tuesday that consumer spending rose at the fastest pace in three months in November, and income posted the best gain in five months. Both were encouraging signs for the 2015 economy.

”After four years of rocky recovery the U.S. economy is now hitting its stride, with a notable acceleration in growth in recent quarters,” said Gus Faucher, senior economist at PNC Financial Services Group. “And growth should remain good next year, with lower gasoline prices a big plus for consumers.”

Tuesday’s economic figures are sure to be closely studied by the Fed. Last week, the central bank ended a policy meeting by saying it would be “patient” in deciding when to raise rates from record lows because the economy wasn’t yet fully healthy. Many investors concluded that no rate hike was likely before mid-2015 at the earliest, and they have driven stocks to record highs.

Unexpectedly strong economic growth, though, could raise pressure on the Fed to raise rates, even though inflation remains below its target rate of 2 percent.

On Wednesday, the Labor Department said that applications for unemployment benefits dropped 9,000 last week to a seasonally adjusted 280,000.

The four-week average, a less volatile measure, declined 8,500 to 290,250. That average has plunged 16 percent in the past 12 months.

”What we have seen in the data over the past few months looks favorable for the labor market,” said Daniel Silver, an economist at JPMorgan Chase.

Applications are a proxy for layoffs. The number of people seeking jobless benefits has been at historically low levels ― below 300,000 ― for 14 of the past 15 weeks. That indicates that companies are retaining their workers and potentially looking to hire with the expectation that economic growth will continue.

As applications for benefits have steadily dwindled, hiring has improved. Employers added 321,000 jobs in November, the most in nearly three years. The unemployment rate held steady at 5.8 percent, down sharply from 7 percent 12 months earlier.

In the first 11 months of this year, employers have added 2.65 million jobs. That already makes 2014 the best year for hiring since 1999.

But wage growth remains sluggish. Average pay has risen just 2.1 percent over the past 12 months, only slightly better than inflation.

Also Tuesday, the University of Michigan reported that its index of consumer sentiment found that U.S. consumers are more optimistic about the economy than at any other time in the past eight years, buoyed by more jobs and falling gas prices.

Two other reports Tuesday were more cautionary: The government said sales of new homes fell in November, evidence that job gains have yet to boost the housing sector. And it said factory orders for long-lasting manufactured goods slumped last month.

Still, the overall U.S. economy is showing resurgent strength and putting distance between itself and others around the world.

Europe is struggling to grow. So is Brazil. Japan has slid into recession. China is straining to manage a slowdown. Russia envisions a recession next year.

For the current October-December quarter, most analysts think the U.S. economy is slowing to an annual rate of around 2.5 percent. And they foresee growth around 3 percent in 2015. That would still be the strongest expansion since the economy grew 3.3 percent in 2005, two years before the Great Recession began.

The 2007-2009 downturn, the worst since the 1930s, cost millions of people their jobs. Since then, the economy has struggled to regain full health. Even after the recession officially ended in June 2009, the economy has turned in tepid growth averaging 2.2 percent annually.

But many economists think growth is set to accelerate as more businesses have grown confident about hiring. The country is on track to have its healthiest year for job growth since 1999. In November, employers added 321,000 jobs, the sharpest one-month increase in three years.

With more people working and having paychecks to spend, solid gains are expected in consumer spending, which accounts for about 70 percent of the economy.

For the third quarter, consumer spending grew at a 3.2 percent rate, the best showing this year and a full percentage point higher than the estimate the government made a month ago. That upward revision was driven by higher spending on health care.

Business investment spending rose at a 7.2 percent annual rate, 2.1 percentage points more than the government’s previous estimate. Much of the new strength came from investment in structures and computer software.

The estimate released Tuesday was the government’s third and final look at third-quarter growth in the gross domestic product ― the value of all goods and services produced in the United States.