The U.S. economy grew at a 2.8% pace in the third quarter, less than expected

The U.S. economy posted another solid though slightly disappointing period of growth in the third quarter, propelled higher by strong consumer spending that has defied expectations for a slowdown.

Gross domestic product, a measure of all the goods and services produced from July through September, increased at a 2.8% annualized rate, according to a Commerce Department report Wednesday adjusted for inflation and seasonality.

Economists surveyed by Dow Jones had been looking for an increase of 3.1%. The economy accelerated at a 3% pace in the second quarter.

The report confirms that the U.S. expansion has continued despite elevated interest rates and long-standing worries that the burst of fiscal and monetary stimulus that carried the economy through the Covid crisis wouldn’t be enough to sustain growth.

However, resilient consumer spending, which accounts for about two-thirds of all activity, has helped keep the economy moving, as has a relentless wave of government spending that pushed the budget deficit to more than $1.8 trillion in fiscal 2024.

Personal consumption expenditures, the proxy for consumer activity, increased 3.7% for the quarter, the strongest performance since Q1 of 2023. Another major factor the department cited for growth was federal government spending, which exploded higher by 9.7%, pushed by a 14.9% surge in defense outlays.

However, an 11.2% jump in imports, which subtracts from GDP, held back the growth number and offset an 8.9% gain in exports.

The release comes with the Federal Reserve poised to lower inflation rates further despite the seemingly strong economy and inflation that remains above target, though far from its peak in mid-2022.

Markets widely expect the Fed to cut another quarter percentage point off its benchmark short-term borrowing rate when policymakers conclude their two-day meeting on Nov. 7.