The U.S. economy maintained a strong growth pace this summer, supported by robust consumer and government spending. According to the Commerce Department’s latest report, Gross Domestic Product (GDP) grew at a 2.8% annual rate in the third quarter, slightly down from the previous quarter’s 3% rate and below economists’ forecast of 3.1%. This continued growth has stretched over the past two years, even amid high borrowing costs.
The economic data arrives just six days before the presidential election, where economic performance is a pivotal issue. Economists generally expect Kamala Harris to manage deficit and inflation concerns effectively, while polls suggest that voters view Donald Trump favorably on overall economic management.
Despite expectations of a recession, the U.S. economy has outpaced predictions under the Biden administration. Wednesday’s report indicates strong consumer spending, supported by a healthy labor market and steady business investment. President Biden highlighted these positive indicators, noting progress from the economic crisis he inherited to achieving what he describes as the “strongest economy in the world.” Recent job gains in October, as reported by ADP, outperformed forecasts, adding 233,000 positions.
On the other hand, Republicans have focused on inflationary challenges, aiming to hold Democrats accountable for rising prices. Meanwhile, the stock market closed lower on the report.
Consumer spending rose at a 3.7% annual pace in Q3, with defense spending and exports further boosting growth. Business investments also held steady, with nonresidential fixed investment increasing by 3.3%.
Notably, economic strength has endured despite a slight cooling in the labor market, which may be due in part to companies’ investments in digital transformation. ZipRecruiter’s Chief Economist Julia Pollak observed that consumer spending and investments continue to rise, defying restrictive monetary policies.
The Commerce Department also reported that core consumer and business spending, a measure of underlying economic demand, climbed to a 3.2% annual pace in Q3. Robert Frick, an economist at Navy Federal Credit Union, said that this robust spending signifies a renewed economic momentum.
The housing market, however, remained weak, with residential investment declining at a 5.1% rate for the second quarter in a row, impacted by high borrowing costs. Inflation slowed further in Q3, with the personal consumption expenditures price index easing to a 1.5% annualized rate.
This quarter’s growth also exceeds the long-term economic trend, with Fed officials projecting a 1.8% growth rate over the long run. Chief Economist Torsten Slok at Apollo Global Management attributed this resilience partly to government programs and technological advancements, including AI.
While consumer-focused companies report mixed experiences, corporate demand in sectors like travel remains robust. The GDP report is unlikely to shift the Fed’s path, as officials have projected rate cuts over the coming months. Additionally, the impact of recent hurricanes, including Helene and Milton, is expected to emerge more prominently in future economic data.
