U.S. GDP grew at an annual rate of 4.9 percent in this year’s third quarter, the commerce department reported.  

The number startled analysts and economists who had expected a 4.3-percent expansion. “You could have knocked me over with a feather,” Diane Swonk, chief economist at KPMG, told the Associated Press.

The last quarter’s growth pace more than doubles the 2.1 percent the economy added in this year’s second three months.

Consumer spending, which fuels more than two-thirds of the economy, advanced by 4 percent through the quarter, fivefold more than the second quarter’s 0.8 percent and showing the strongest bump since the final quarter of 2021, the AP reported.

Inflation averaged an annual rate of 3.5 percent through the quarter, indicating that shoppers increased the volume of goods and services they bought as well as paying more dollars for them. 

Also, investment in residential property grew by 3.9 percent, its first expansion in more than two years, according to the AP.

The jobs market remained strong while inflation waned, prompting shoppers to continue splurging on both goods and services despite interest rates standing at their highest in 22 years.

However, still-rising mortgage rates have made that “a short-lived bounce that’s already reversing,” Swonk noted.

Also, the household savings shrank and business investment ticked down 0.1 percent over the period. Both signal a possible economic slowdown in the months ahead, The Wall Street Journal noted.

After-tax wages adjusted for inflation slipped 1.0 percent during the quarter.

The economy has remained resilient through this year, defying economists’ predictions of a downturn.

However, the economy’s fourth-quarter performance faces burdens not present in the third quarter. This month, student loan repayments began again, draining an average of $284 to $584 a month from each of about 44 million Americans.

The stock market has slumped, the housing market remains hobbled by high interest rates, wars continue in the Mideast and Ukraine, and threats of a U.S. government shutdown and debt default loom.

Also, bond yields have reached their highest in 16 years, meaning interest rates are likely to remain high for mortgages, car payments, credit cards, and other kinds of loans.

The third quarter also saw a wave of spending on concerts by Beyoncé and Taylor Swift and blockbuster movies “Barbie” and “Oppenheimer,” Anna Wong, Bloomberg Economics’ chief U.S. economist, said. Those factors will be absent this quarter.

“A lot of this [third-quarter growth] seems to be driven by consumer spending on discretionary items and discretionary services,” Yelena Shulyatyeva, senior U.S. economist at BNP Paribas, told Bloomberg. “We think that it’s a temporary boost.”

The U.S. economy will grow only 0.7 percent this quarter, according to economists surveyed by Bloomberg. However, forecasters have repeatedly been flummoxed by the U.S. economy’s unrelenting strength, Bloomberg pointed out.

TREND FORECAST: The continued strong economy, especially in consumer spending, would increase the odds, if only slightly, that the U.S. Federal Reserve would raise its interest rate again this year, either when it meets this week or at December’s session.

However, with the Israel War now on the table, a war that did not exist when the Feds last met, we forecast the odds are for a pause and then a steady decline will be the Fed way for most of next year. 

And although consumer spending rose, business investment slipped slightly. That indicates that the business sector is unwilling to bet on the economy’s future strength. Thus, we maintain our trend forecast for Dragflation: Economy dragging down and inflation rises.