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Third-Quarter GDP Gets Major Upward Revision

American-flag-moneyA strong revision to consumer spending helped push the economy to its fastest growth rate in more than a decade last quarter.

According to a third reading [1] released Tuesday by the Bureau of Economic Analysis [2] (BEA), gross domestic product (GDP) increased at an annualized rate of 5.0 percent in Q3, up from an earlier estimate of 3.9 percent and an estimate of 4.6 percent in the second quarter.

It also marked the best growth rate for GDP since the third quarter of 2003, which saw the economy grow at a yearly rate of 6.9 percent.

According to BEA, the latest quarterly estimate includes improved contributions from consumer spending, which is now estimated to have increased 3.2 percent compared to Q2's 2.5 percent gain.

Also improved in the third report was the contribution from nonresidential fixed investment, which increased 8.9 percent. Residential fixed investment—a measure of the housing market's direct contribution to economic activity—increased just 3.2 percent.

Despite the third quarter's promising growth rate—which beat the 4.3 percent forecast by economists surveyed by the Wall Street Journal—analysts don't expect the economy will be able to maintain that momentum in the fourth quarter, even with lower gas prices fueling spending.

"The central story of the third and fourth quarters remains intact with the torrid growth in the second and third quarters not continuing into fourth quarter, but also not being problematic for 2015," said Doug Handler, chief U.S. economist for IHS [3], which predicts real GDP growth will come in between 2.2–2.4 percent for all of 2014. "In conjunction with other recent releases on the economy, our assessment for growth [in] 2015 will now be around 3.0 percent."