Economy still hobbling along

"The U.S. economic recovery is still stuck in second gear," said Paul Ashworth, senior U.S. economist for Capital Economics in a note Friday. "The economy isn't growing rapidly enough to reduce the unemployment rate. "

The average growth rate during U.S. economic expansions over the last 30 years is 3.6%, and growth had been as strong as 5% at the end of last year. But the last two quarters of weak growth have raised concerns that the economic recovery could be stalling out.

Economists aren't expecting significantly better growth any time soon. The forecast is for 2.5% growth in the fourth quarter, and 2.8% for all of 2011.

Consumer spending picking up

Overall spending by households increased at a 2.6% pace, the best reading for that measure since the end of 2006. But disposable personal income was nearly flat in the quarter, which Ashworth said means consumers were dipping into savings.

Still, fears of the economy tumbling into double-dip recession have abated somewhat recently. Thursday, the Economic Cycle Research Institute, which published a widely-followed set of leading economic indicators, said it now believes the risk of a double dip has passed, although it does not forecast any pickup in growth in the foreseeable future.

And there were some bright spots in Friday's report, including strong spending by consumers on big-ticket durable goods, such as cars and appliances, as well as strong spending on services.

0:00/2:42A long, winding road ... no double-dip

"That's good, because services are where the jobs are," said Robert Brusca of FAO Economics. "I think the economy is a half-full glass that is filling. If fears of a double-dip start to recede, that might make businesses more confident about hiring, which will feed growth even more."

The Federal Reserve is already widely expected to announce plans to pump hundreds of billions of dollars into the economy when it meets next week. And Friday's report supports the argument that the economy needs a jolt to get moving again.

But many economists are skeptical that Fed's move will be effective.

Friday's reading was the Commerce Department's first take on third quarter growth. The reading will be revised each of the next two months before the final reading, when the data is complete. 

First Horizon turns profit in third quarterGDP