The economy grew at a 2.9 percent annual rate, the strongest growth rate since the third quarter of 2014. Most forecasts had put growth for the quarter at just over 2.0 percent. While this number is better than expected, a big factor was an increase in inventory accumulation, which added 0.61 percentage points to growth. Accumulation was actually negative in the second quarter, so the rate of accumulation is likely to be even higher in the fourth quarter.

Most categories of final demand were relatively weak. Consumption grew at a modest 2.1 percent annual rate. Residential investment fell at a 6.2 percent annual rate, its second consecutive decline. Non-residential fixed investment grew at a 1.2 percent rate, roughly the same pace as in the second quarter. This follows two quarters of decline. The collapse of energy prices and the increase in the trade deficit in manufacturing are the major factors behind the weakness in this component.

Government expenditures increased at a 0.5 percent annual rate, with a 2.5 percent increase in federal spending offsetting a 0.7 percent decline at the state and local level. This is the second consecutive quarter of decline at the state and local level.

Exports were a source of strength in the quarter, rising at a 10.0 percent annual rate, the strongest performance since the fourth quarter of 2013. As a result of this increase, net exports added 0.83 percentage points to growth for the quarter.

One striking figure in this report is the slower pace of inflation shown in the core personal consumption expenditure deflator (PCE). This rose at just a 1.7 percent annual rate in the third quarter. The rate of inflation shown in the core PCE has been trailing off throughout the year, rising at a 2.1 percent annual pace in the first quarter and a 1.8 percent rate in the second quarter. While there are enough erratic movements in the quarterly data to avoid treating this as evidence of deceleration, it is certainly hard to make a case for acceleration with these data.