) -- Consumer spending gave a boost to the U.S. economy in the third quarter, even though overall economic growth remains modest.

The government's first estimate of third quarter economy growth came in at 2.5%, in line with economists' estimates, after the economy grew by 1.3% in the second quarter.

The recent read dispelled fears that the U.S. might have slipped into a recession in the third quarter. Economist had been particularly concerned about a double dip recession for the second half of the year back in August when high gas prices, volatility in the stock markets and the worsening debt crisis in Europe threatened to drag down the U.S. economy.

While headwinds such as a weak jobs market and housing sector as well as debt turmoil in Europe remain, the U.S. economy has held up, in part due to strength in U.S. corporations. Consumer spending, in particular, has helped buoy the economy.

The latest report on the economy shows that personal consumption increased by 2.4%, better than the forecasted 1.9%, according to Dan Greenhaus, strategist with BTIG. Most of the consumption growth came from spending on services, which Greenhaus noted hasn't been so strong since 2006.

Meanwhile, "government consumption was flat in the quarter after declining in each of the last three quarters as both nondefense spending and state and local spending both declined," noted Greenhaus.

Sales of computers added 0.21% to the percentage change in economic growth. Production of cars contributed a 0.07% gain.

"While the components are better than expected, and the drag on growth from inventories is particularly notable and likely to be reversed, we would look for more momentum from business investment and consumer spending before getting too carried away," wrote David Semmens, economist with Standard Chartered Bank.

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Slower consumer spending in the second quarter dragged down economic growth, but economists think that lower energy prices has helped that trend reverse. Semmens noted that improving export numbers was another factor that helped growth in the third quarter.

-- Written by Chao Deng in New York.

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Chao Deng


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