Stronger-than-expected economic growth smooths the path for the U.S. Federal Reserve to signal a December interest rate hike when it meets next week.
Third quarter GDP growth of 2.9 percent was better than the 2.5 percent that was expected by economists, and it also marked the best pace of growth in two years. With Friday's report, the economy closes in on the 3 percent level some economists had expected to see for the second half of the year.
"Most immediately important is this leaves the door wide open for the Fed to raise rates. They should do it and could do it next week, but they won't," said Jefferies Chief Financial Economist Ward McCarthy. The Fed is widely expected to hike rates for the second time in 10 years at its December meeting.
The figure came despite consumer spending that slowed to a 2.1-percent growth rate after the second quarter's very strong 4.3 percent pace.
"It's a pretty good number. The third quarter turned out the to be the way it looked like it was going to be at the outset — close to 3 percent," said McCarthy. "Spending slowed down. So frankly, it's encouraging we can get this kind of growth with consumer spending that was basically cut in half in the quarter, and I think we'll get something similar in Q4."