Surprising Factor Boosts US Economy Growth In Third Quarter

Arrow pointing upward on stacked percentage blocks.

The U.S. economy expanded in the third quarter, driven predominantly by consumer spending.

At a Glance

U.S. GDP grew at an annualized rate of 2.8% in the third quarter.
Consumer spending rose by 3.7%, powering economic growth.
Inflation is nearing the Federal Reserve’s 2% target.
Consumer confidence hit its highest mark since March 2021.

Economic Growth in the Third Quarter

The U.S. economy grew at an annualized rate of 2.8% in the third quarter. This surpasses the forecasted 2.6%, though it is slightly lower than the 3% growth from the prior quarter. The Bureau of Economic Analysis attributes much of this growth to a significant increase in consumer spending, which makes up about 70% of U.S. economic activity.

Consumer spending grew by 3.7% in the third quarter, marking a noteworthy contribution to the overall economic performance. Increased consumer confidence, supported by moderating inflation and a robust job market, seems to have spurred this spending. With inflation nearing the Federal Reserve’s target of 2%, the U.S. economy continues to demonstrate resilience.

Role of Consumer Confidence

Consumer confidence saw a significant rise in October, registering the largest gain since March 2021. This boost is crucial, as consumers are less likely to expect a recession in the coming months. This optimism encourages spending, which fuels economic growth further. As of yet, inflation remains a challenge, though signs of moderation are apparent.

The Federal Reserve’s rate cuts, alongside cooling inflation, are positive indicators for consumer financial health in the long term. Rising wages and low unemployment help sustain consumer earnings and spur spending, contributing to economic stability.

U.S. Q3 GDP grew at 2.8% (down from 3.0% in Q2), driven by consumer spending, exports, and federal spending. Inflation eased, with the PCE index up 1.5%. Personal income rose slower, saving rate dipped to 4.8%. Inventory and residential investment slowed growth. pic.twitter.com/yPPJBPwfVH

— Econoday, Inc. (@Econoday) October 30, 2024

Future Economic Outlook

The Federal Reserve’s recent interest rate cuts aim to support this growth trajectory. Plans for further reductions into 2025 and 2026 could reduce borrowing costs and stimulate economic activity. Exports, showing an 8.9% increase, also contribute to the economy’s strength. Despite potential headwinds like slowed job market growth, a gain of approximately 120,000 jobs is expected in October, impacted by external factors like severe weather and a Boeing strike.

“The economy right now is firing on nearly all cylinders,” according to Joe Brusuelas, chief economist at consulting firm RSM.

The economy’s core strength is evident with a 3.2% increase, despite business investment slowing in sectors such as housing. However, increased expenditure on equipment provides a positive note for future industrial growth. Consumers continue to play a pivotal role, bolstered by steady employment and income growth. As Dana Peterson noted, employed consumers are likely to keep spending, fueling further growth.

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

Impact on Political Landscape

Economic performance remains a focal point in the political competition between Vice President Harris and former President Trump. While the Harris campaign emphasizes plans for housing, small business, and tax credits, Trump’s agenda includes potential tariff hikes and immigration policies. As consumer spending advances and inflation moderates, both parties are likely to outline different economic strategies to appeal to the electorate.

With robust economic data and policy-oriented figures, the economy remains at the forefront of American political discourse. As inflationary pressures ease, the nation can expect ongoing growth, driven by consumer confidence and informed policy decisions.