Consumer spending was evenly distributed between goods and services, growing by 4.8% and 3.6%, respectively.

The U.S. economy in the third quarter grew even faster than expected, driven by strong consumer demand despite higher interest rates, ongoing inflationary pressures, and numerous other domestic and global challenges.

Gross Domestic Product (GDP), measuring all goods and services produced in the U.S., grew by 4.9% on an annualized basis in the period from July to September, compared to the unrevised rate of 2.1% in the second quarter, as reported by the Department of Commerce on Thursday. Economists surveyed by Dow Jones had expected an acceleration of 4.7%.

The sharp growth was attributed to contributions from consumer spending, inventory growth, exports, housing investment, and government spending.

Consumer spending, measured by personal consumption expenditures, increased by 4% for the quarter, following a mere 0.8% growth in the second quarter. Gross private domestic investment grew by 8.4%, and government spending and investment surged by 4.6%.

Consumer spending was fairly evenly distributed between goods and services, with both categories growing at 4.8% and 3.6%, respectively.

This GDP growth marked the largest increase since the fourth quarter of 2021.

The markets had a limited response to this news, as stock market futures opened lower, and Treasury yields mostly declined.

While the report may provide some incentive for the Federal Reserve to maintain a hawkish policy, traders still anticipate little chance of an interest rate hike at the central bank's meeting next week, according to CME Group data. Futures prices indicated a 27% probability of an increase for the December meeting following the GDP data.

"Investors should not be surprised that consumers were spending during the late summer months," said Jeffrey Rouse, chief economist at LPL Financial. "The real question is whether this trend can persist in the coming quarters, and we think it will not."

Regarding other economic news on Thursday, the Labor Department reported that for the week ending October 21, initial jobless claims totaled 210,000, which was 10,000 higher than the previous period and slightly above Dow Jones' estimate of 207,000. Additionally, according to the Department of Commerce, durable goods orders increased by 4.7% in September, significantly exceeding the 0.1% growth in August and the forecast of 2%.

While many economists had thought the U.S. was experiencing at least a shallow recession, economic growth has persisted thanks to consumer spending that has exceeded all expectations. Consumer spending accounted for about 68% of GDP in the third quarter.

Even as Covid-era government transfers wind down, spending remains high as households draw down savings and increase balances on credit cards.

Growth is also occurring despite the Federal Reserve not only raising rates at the fastest pace since the early 1980s but also promising to keep rates elevated until inflation returns to an acceptable level. Price increases have significantly outpaced the central bank's 2% annual inflation target, although inflation rates have at least declined in recent months.

In addition to rates and inflation, consumers face a host of other issues.

The expected resumption of student loan payments is set to hit family budgets, while higher gasoline prices and a volatile stock market weigh on confidence. Geopolitical tensions also create potential headaches, with fighting between Israel and Hamas, as well as the war in Ukraine, causing significant uncertainty about the future.

While the U.S. has proven resilient to various challenges, most economists expect economic growth to significantly slow in the coming months. However, they generally believe the U.S. will be able to avoid a recession absent any other unforeseen shocks.