US economy grows at a strong pace thanks to consumer spending

WASHINGTON – The U.S. economy grew at a healthy 2.8% annually from July to September, with consumers helping drive growth despite still-high interest rates.

A Commerce Department report Wednesday said gross domestic product (the total output of goods and services in the economy) slowed slightly from the 3% growth rate in April-June. But the latest numbers continue to reflect surprising resilience as Americans assess the state of the economy in the final stretch of the presidential race.

Consumer spending, which accounts for about 70% of U.S. economic activity, accelerated to an annual rate of 3.7% last quarter, up from 2.8% in the April-June period. Exports also contributed to growth in the third quarter, rising 8.9%.

On the other hand, business investment growth has slowed sharply due to falling investment in housing and non-residential buildings such as offices and warehouses. But equipment costs have increased.

Wednesday’s report also contained some encouraging news on inflation. The Federal Reserve’s favorite measure of inflation—called the personal consumption expenditures index, or PCE—rose just 1.5% year over year last quarter, down from 2.5% in the second quarter and the lowest rate in more than four years. . Excluding volatile food and energy prices, so-called core PCE inflation was 2.2%, down from 2.8% in the April-June quarter.

The report is the first of three estimates the government will make on GDP growth in the third quarter of the year. The US economy continues to grow despite much higher borrowing rates imposed by the Federal Reserve in 2022 and 2023 in an effort to curb inflation, which has soared as the United States bounced back with unexpected strength from a brief but crippling recession caused by Covid-19. 2020. Despite widespread predictions that the economy will face a recession, it continues to grow as employers continue to hire and consumers continue to spend. And as inflation steadily declines, the Fed has begun cutting interest rates.

The report “sends a clear signal that the economy is doing well and inflation is slowing – which is good news for the Federal Reserve,” said Ryan Sweet, chief U.S. economist at Oxford Economics.

In the GDP data, the category that measures the underlying strength of the economy grew at a solid 3.2% year-on-year in the July-September quarter, up from 2.7% in the April-June quarter. This category includes consumer spending and private investment, but excludes volatile items such as exports, inventories and government spending.

“Today’s GDP report shows how far we have come since I took office—from the worst economic crisis since the Great Depression to the strongest economy in the world,” President Joe Biden said.

Other recent economic reports also point to a still healthy economy. In a sign that the country’s households, whose purchases drive much of the economy, will continue to spend, the Conference Board said Tuesday that its consumer confidence index posted its biggest monthly gain since March 2021. The share of consumers who expect a recession next year has fallen to its lowest 12-month mark since the board first raised the issue in July 2022.

At the same time, the country’s once vibrant labor market has lost some momentum. Job openings in the United States fell in September to their lowest level since January 2021, the government reported Tuesday. And employers have added an average of 200,000 jobs per month this year—not bad, but less than a record 604,000 in 2021 as the economy recovered from the pandemic recession, 377,000 in 2022 and 251,000 in 2023.

On Friday, the Labor Department is expected to report that the economy added 120,000 jobs in October. However, this growth is likely to be significantly limited by the effects of Hurricanes Helen and Milton, as well as the blow to aviation giant Boeing, all of which temporarily cost thousands of people their jobs.

Despite continued progress in inflation, average prices are still well above pre-pandemic levels, angering many Americans and threatening Vice President Kamala Harris’ prospects in her race against former President Donald Trump. However, most leading economists believe that Trump’s policy proposals, unlike Harris’s, will “increase inflation.”

At its last meeting last month, the Fed was satisfied enough with its progress against inflation – and concerned enough about the slowing labor market – to cut its benchmark rate by a significant half of a percentage point, its first and largest rate cut in more than four years. years. The Fed is expected to announce another rate cut at its meeting next week, this time by a more typical quarter-point.

Central bank policymakers also signaled they plan to cut the key rate again at their final two meetings this year, in November and December. And they envision four more rate cuts in 2025 and two in 2026. The cumulative effect of the Fed’s rate cuts over time will likely be lower borrowing rates for consumers and businesses.