A new report shows the American economy expanded in the third quarter of the year at a surprisingly higher rate than expected.

The U.S. Commerce Department says it increased at an annual rate of 2.8%, up from the 2.5% annual rate in the second quarter of the year and higher than many economists forecasted.  

This measure of the country’s total output of goods and services is the first of three estimates for the quarter by the department.

 “A much stronger third quarter growth report than expected, led by an impressive buildup in inventories,” saod Lindsey Piegza,
managing director and chief economist at the investment firm Sterne Agee. "Going forward, however, this stockpile of goods is likely to contract from production in the current quarter, exacerbating the weakness at the end of the year. Most importantly, the largest component of the economy, the consumer, continues to retract suggesting retailers are right to brace for a lackluster holiday spending season.”

She said while the headline figure at first glance is “impressive, the details reveal the economy continues to struggle further justifying the Fed’s continued push to provide additional stimulus.” 

Personal consumption rose just 1.5% in the third quarter, less than the consensus forecast and slightly lower than during the second quarter. This is the second consecutive quarter of decline in spending since consumption peaked at 2.3% at the start of the year. The vast majority of the decline was centered around services with a rise of just 0.1%, the weakest quarterly reading since the second quarter of 2009. Goods consumption rose 4.3% compared to 3.1% in the second quarter, reflecting in part American’s strong demand for autos against the backdrop of cheap financing costs.