US lifted by surge in defence spending

A SMALLER trade deficit and a surge in defence spending buoyed US economic growth in the third quarter, but other details of yesterday’s report hinted at some loss of momentum in activity.

Gross domestic product grew at a 3.5 per cent annual rate, the Commerce Department said yesterday, beating economists’ expectations for a 3.0 per cent pace.

While the pace of growth in business investment, housing and consumer spending slowed from the second quarter, all those categories contributed to growth.

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“The report was broadly constructive, with the gains broadly based and pointing to positive underlying momentum in the US economy,” said Millan Mulraine, deputy chief economist at TD Securities in New York.

Despite decelerating from the second quarter’s brisk 4.6 per cent pace, it was the fourth quarter out of five that the economy has expanded at or above a 3.5 per cent clip.

A separate report from the Labor Department showed first-time applications for unemployment benefits rose modestly last week, but remained at levels consistent with firming labour market conditions.

The data came one day after the Federal Reserve ended its asset purchasing programme. Fed officials said there was sufficient underlying strength in the broader economy.

The dollar extended gains against the euro and the yen.