US GDP grows by two per cent

The US economy expanded by two per cent in the third quarter, the Commerce Department said today, due to a ramp-up in government spending.

Federal government expenditures and gross investment increased by 9.6 per cent over the three months to September, while national defence spending jumped 13 per cent compared to the previous quarter.

Consumer spending rose two per cent over the quarter, and residential construction soared 14.4 per cent, which is understood to be broadly in line with expectations.

Rob Carnell, economist at ING Bank, said today that what saved the third quarter figure from being “much, much worse” was a “freakish surge in government spending, driven by a 13 per cent gain in defence spending”.

“In short, a decent headline, but a fairly poor background picture for domestic demand," he said.

"The Fed will not be persuaded to trim their quantitative easing purchases on the back of this data, and instead will see further ammunition to expand QE3 to include Treasuries at the December Fed meeting.”