U.S. economic growth picked up in the third quarter, but not as much as expected, as improved consumer spending was offset in part by slower paces for both inventory building and exports.

Separate reports showed the cost of hiring and retaining workers grew moderately during the third quarter, as consumer sentiment improved at the end of October from a midmonth reading but was still lower than at the end of September.

Gross domestic product increased at a 3.7% annual rate, the Commerce Department said today. That topped the 3.3% rate recorded in the final second-quarter reading but fell well short of the 4.3% economists had expected,

Inflation slowed sharply during the quarter. The government’s price index for personal consumption rose at a 1.1% rate, down from a 3.1% pace in the second quarter. The price index for gross domestic purchases, which measures prices paid by U.S. residents, dropped to a 1.8% growth rate from 3.5%. The chain-weighted GDP price index dropped to a 1.3% pace of growth from 3.2%.

Consumer spending, which accounts for about two-thirds of economic activity, rose 4.6%, up from a 1.6% gain. Purchases of durable goods expanded at a blistering 16.8% pace, a sharp contrast to the 0.3% contraction recorded in the second quarter. Spending on nondurable goods such as food and clothing rose 3.9%, up from 0.1% in the prior quarter.

Businesses reduced inventories by US$13 billion during the quarter, following a US$21.1 billion increase in the second.

Exports rose 5.1%, while imports advanced by 7.7%. Imports cut GDP growth by 1.13 percentage point.

Meanwhile, the University of Michigan reported in its final October reading that its consumer-sentiment index clocked in at 91.7, an improvement from the midmonth level of 87.5, though still shy of the 94.2 recorded at the end of September. Economists had expected a much lower reading of 88. Consumers’ assessment of current conditions ticked higher from last month, but their expectations for the future declined.

In a separate release, the U.S. Labor Department said its employment-cost index rose 0.9%, same as the second-quarter reading. Wages and salaries rose by 0.7%, up from a 0.6% increase in the previous three months, but benefit-cost growth dropped to 1.1%, the slowest pace in more than two years, from 1.8%. Benefit costs remain the main problem boosting employment costs but seem to be worsening at a slower pace.

In another report released today, the Chicago branch of the National Association of Purchasing Managers said its purchasing-managers index jumped to 68.5 in October, blowing past the 61.9 recorded last month and the 59 that economists had expected. Readings above 50 indicate expansion.