An unexpected surge in consumer spending powers the U.S. economy to a solid 2.8% growth in the third quarter, instilling hope amid persistent inflationary pressures.
At a Glance
- U.S. GDP grew 2.8% in Q3, surpassing expectations.
- Consumer spending surged 3.7%, making up 70% of U.S. economic activity.
- Inflation nears the Federal Reserve’s 2% target as spending habits bolster growth.
- Federal Reserve lowers interest rates, forecasting additional cuts in the future.
Economic Growth Surpasses Expectations
The U.S. economy outperformed forecasts in the third quarter, expanding at an annualized rate of 2.8%. This growth is slightly below the second quarter’s 3% but above the expected 2.6% pace. The Bureau of Economic Analysis attributes this resilience largely to robust consumer spending, which demonstrated a 3.7% annualized increase. This sector alone accounts for nearly 70% of the country’s economic activity and has shown a steady upward trajectory, supporting overall economic performance.
Rising wages and low unemployment levels have played significant roles in enhancing consumer confidence. The Conference Board’s consumer confidence index saw its largest monthly increase since March 2021, elevating confidence among consumers against the backdrop of moderating inflation. The personal consumption expenditures index rose at a 1.5% annual pace, edging closer to the Federal Reserve’s 2% target, while consumers’ purchasing power continues to thrive.
JUST IN: The US economy is having a remarkable year: 2.8% GDP growth in Q3. That’s in line with expectations and well above the usual norm of ~2% growth.
Strong consumer spending and government spending continue to boost growth. pic.twitter.com/8lJp7sKxhg
— Heather Long (@byHeatherLong) October 30, 2024
Inflation and Federal Reserve’s Response
Inflation remains a consideration, though it has eased from pandemic-era peaks. Core PCE inflation, excluding food and energy, dropped from 2.8% in the previous quarter to 2.2%. This trend offers the Federal Reserve leeway to commence interest rate cuts, implemented recently by half a percentage point. Such policy shifts signal attempts to guide towards a “soft landing” – a scenario of curbed inflation without inducing recession.
Chief US economist at Oxford Economics said the figures “send a clear message that the economy is doing well, and inflation is moderating.”
Federal plans for further rate cuts into 2025 and 2026 aim to lower borrowing rates, potentially boosting investments and spending. Economists like Dana Peterson emphasize, “If you’re a consumer and you’re working, then you’re going to spend.” Employment is a key focus, with a continuing robust job market facilitating consumer spending growth, even as some segments like job openings slow down.
The U.S. economy grew at a 2.8% annualized rate in Q3.https://t.co/qHGf5n4FeX#GDP
— BEA News (@BEA_News) October 30, 2024
Political Implications of Economic Performance
The U.S. economy’s current trajectory featured heavily in the recent presidential election contest between Vice President Harris and former President Trump. Their respective economic agendas encompassed divergent approaches to sustaining growth and managing inflation. Trump advocated for tariff increases and corporate tax cuts, while Harris favored stimulating growth through housing expansion and small business support.
The Biden administration has overseen an inflation explosion, but experts, including Joe Brusuelas, Principal and Chief Economist for RSM US LLP, say the situation has vastly improved. “The economy right now is firing on nearly all cylinders,” Brusuelas said.
