The US economy continued its growth trend in the third quarter, with gross domestic product (GDP) rising at an annualized rate of 2.8%, according to a report by the Commerce Department.
This growth rate, which accounts for inflation and seasonal adjustments, represents a slight decrease from the 3% GDP growth in the second quarter and fell below the 3.1% growth expected by economists. However, it signals the continuation of a solid two-year economic expansion, largely driven by robust consumer spending, increased exports, and heightened government expenditures.
Consumer spending, a key component accounting for around 70% of US economic activity, rose at a strong 3.7% pace in the third quarter, up from 2.8% in the previous quarter. Americans particularly increased spending on big-ticket items, including vehicles and prescription drugs. Government spending also contributed, with federal defense investments providing a notable boost. Business investment showed a moderate rise, with nonresidential fixed investments up 3.3%, though this figure is down from the previous quarter due to a dip in spending on structures.
The quarterly report indicates that underlying demand remains solid, with final sales to private domestic purchasers—a measure combining consumer and business spending—accelerating to a 3.2% growth rate from 2.7% in the second quarter. Robert Frick, corporate economist at Navy Federal Credit Union, noted that these spending contributions indicate a “second wind” for the current economic expansion.
Residential investment, however, continued to decline, down by 5.1% in the third quarter, reflecting the impact of elevated mortgage rates on the housing market. Despite strong consumer and government activity, the continued pressure on housing points to the ongoing effects of high borrowing costs in certain areas.
Another positive indicator in the third quarter was easing inflation. The personal-consumption expenditures (PCE) price index, a key gauge of inflation, cooled to a 1.5% annual rate, down from 2.5% in the prior quarter. Excluding volatile food and energy prices, the core PCE index dropped to 2.2% from 2.8%. As inflation moderates, the Federal Reserve’s target of 2% annual inflation appears within reach, with interest rate adjustments likely to reflect continued progress on price stability.
Compared to the average annual growth of 2.5% during the last economic expansion (2009-2019), this quarter’s 2.8% rate stands out as strong. The Biden administration has highlighted this recent period of growth, noting that job stability, wage gains, and consumer resilience have supported the economy despite high borrowing costs. Furthermore, technological advances and federal initiatives, including the Inflation Reduction Act, have reportedly helped sustain economic momentum.
Despite the third-quarter gains, some economic pressures persist. Households with lower disposable income are increasingly focused on value, and those entering the housing market face high mortgage rates. The economic outlook could be further influenced by recent natural disasters, with Hurricanes Helene and Milton expected to impact upcoming employment data, potentially reflecting a temporary dip in job growth.
Federal Reserve policymakers have continued to monitor inflation and employment, and recent data signals that the Fed is leaning toward rate cuts to support employment goals. The economy’s performance in the third quarter suggests a “soft landing” may be within reach, characterized by easing inflation without triggering a recession, according to economists like former St. Louis Fed President James Bullard.
With input from CNN, the Wall Street Journal, and Bureau of Economic Analysis.
