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 during the three-month period from July through September, increased at a 2.8% annualized rate, according to a Commerce Department that is 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, contributing nearly 2.5 percentage points to the total.

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. Fiscal spending at the federal level contributed 0.6 percentage point to the GDP growth rate.

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

Markets showed little reaction to the data, as stock market futures pointed to a mixed opening. Treasury yields also were mixed. Earlier in the morning, payrolls processing firm ADP reported that private job growth surged by 233,000 in October, well above expectations.

“You’ve got the perfect combination of strong growth and slowing inflation. What more could you want?” said Dan North, senior economist at Allianz Trade North America. “But a lot of people want to have lived a less inflationary period that is still hurting them. That’s why they think the economy is still rotten.”

The GDP release comes with the Federal Reserve poised to lower interest 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.

There was good news on the inflation front: The personal consumption expenditures price index, the Fed’s preferred inflation gauge, rose 1.5% for the quarter, below the central bank’s 2% target and sharply down from the 2.5% increase in Q2. However, excluding food and energy, core PCE was still up 2.2%. Fed officials generally consider core inflation as a better measure of longer-term trends.

Consumers have been using savings and credit to help fuel their purchases. The personal savings rate decelerated in the third quarter to 4.8%, down from a 5.2% level that had been revised up sharply.