The American economy barreled ahead in the third quarter as consumers stepped up and spent more, keeping it on track for the best annual performance since 2005.
The government said on Friday that the economy expanded at an annualized rate of 3.5 percent between July and September after the 4.2 percent pace in the previous quarter. But there were signs that the growth could cool in the coming months.
Businesses remain hesitant to increase spending, despite the large corporate tax cut enacted late last year. Some of the gains were also one-offs that could fade quickly, like the restocking of shelves at stores and warehouses, which contributed more than half of the overall growth.
If there is a slowdown in the economy, it could further unsettle the markets, which have slumped in recent weeks. The Standard & Poor’s 500-stock index fell 1.7 percent on Friday and is down nearly 9 percent for the month.
“Clearly a strong headline, but the details are a little less robust,” said Michelle Meyer, who leads United States economics at Bank of America Merrill Lynch.
Still, with 10 days to go before the midterm election, the headline number will be a valuable talking point for Republicans on the campaign trail. The second and third quarters represented the strongest back-to-back growth since 2014, and Republican leaders were quick to claim credit.
“Americans have more opportunity and more money in their pockets today than they did two years ago, and that’s in large part due to the reforms we’ve pushed forward,” said Representative Erik Paulsen, a Minnesota Republican who is chairman of the Joint Economic Committee and is in a tight race for re-election, according to recent polls.
Tax cuts for individuals and the budget deal early this year, which raised federal spending, helped elevate growth in the third quarter. Consumer spending increased 4 percent, and federal outlays rose 3.3 percent.
“There will come a day of reckoning for the economy after the money from the tax cuts is all gone,” said Chris Rupkey, chief financial economist at MUFG Union Bank, “but for today Washington really has something to crow about.”
The effect of the corporate tax cut was less evident. Businesses did not ramp up investment in equipment and factories — the kinds of things executives do when they anticipate the good times to continue.
“You really lean back in your chair and wonder whether this enormous tax cut that was given to corporations only lasted three months,” said Torsten Slok, chief international economist at Deutsche Bank. “The economics textbook would say that if you give a tax cut that lasts several years, you should see the effects for several years.”
Looking ahead, Michael Gapen, chief United States economist at Barclays, said that he was not expecting a big rebound in business spending and that “if you’re banking on strong G.D.P. growth, you need business investment.”
Another wild card is the effect from one of President Trump’s signature economic moves: increasing tariffs on $250 billion in Chinese imports. The president has also raised tariffs on imports from around the world, including on steel, aluminum and solar panels. So far, there is little evidence that those trade policies have hurt growth much.
A surge in soybean purchases by buyers seeking to act before retaliatory Chinese tariffs kicked in helped lift gross domestic product in the second quarter. But that uptick reversed itself in the third quarter.
“One interpretation of the data is that the trade war is not having the intended effect of boosting exports and lowering imports,” Mr. Slok said. “Another interpretation is that the trade war can’t do much about that. If the consumer spends more, you will have more imports.”
Trip Tollison, chief executive of the Savannah Economic Development Authority in Georgia, said that shipping volume at the Port of Savannah was up 12 percent from a year ago and that there were almost no vacancies in the industrial real estate market. Warehouses and logistics companies have been among the most active businesses in the area.
“We’re in a great spot, no complaints for sure,” Mr. Tollison said. “We’ve got a very strong economy right now.”
The latest data could increase the likelihood that policymakers at the Federal Reserve will continue to gradually raise interest rates, in order to prevent the economy from overheating and to head off inflation. The Fed is expected to raise rates one more time this year, in December, and several times in 2019.
That has irked Mr. Trump, who criticized the chairman of the Fed, Jerome H. Powell, on Tuesday. “Every time we do something great, he raises the interest rates,” the president said.
Officials at the Fed, who do not report to the president, consider themselves above politics. Mr. Trump’s attack is highly unusual.
The steady increase in borrowing costs is already being felt in the housing market. Residential investment slid 4 percent in the third quarter, and has fallen in five of the last six quarters.
Rising interest rates also put downward pressure on stocks. The yield on the 10-year Treasury note has been climbing, which makes riskier stocks less appealing to investors than safer bonds.
“We can only think investors are already looking ahead to economic conditions next year when the fiscal stimulus boost starts to fade,” Mr. Rupkey of MUFG Union Bank said. “For the stock market, the economy’s as good as it gets, and after buying the rumors, they are selling the fact.”
Wall Street’s recent decline, which began in early October, came too late to affect sentiment or spending in the third quarter. But on Main Street, consumers do have plenty to cheer. Unemployment in September stood at 3.7 percent, the lowest in nearly half a century, and wages are finally rising.
In Chicago, Avant, an online consumer lender with 600 employees, is planning to hire 400 more people by the end of 2019. The company specializes in lending to families earning between $40,000 and $100,000 for things like debt consolidation, auto repairs and medical bills. It also sells online lending technology to banks.
“Consumers today are in great shape,” said Al Goldstein, Avant’s chief executive. Injecting a note of caution, he added that “if interest rates continue to rise, that may change.”