The U.S. economy continued to show signs of resilience as it expanded at an annual rate of 2.8% during the third quarter of 2024. This growth is largely attributed to strong consumer spending and increased exports, with the Commerce Department affirming this figure and maintaining its initial estimate of the economic performance during this period.
While this growth is slightly down from the 3% rate observed earlier for the April to July period, it marks consistency, with the economy growing above 2% for eight of the past nine quarters. This sustained growth indicates the ability of the U.S. economy to weather various stresses, contributing to optimism for the future.
Notably, consumer spending, which constitutes about 70% of the total U.S. economic activity, surged at a remarkable rate of 3.5% during the quarter. This increase was higher compared to the 2.8% recorded for the previous quarter, representing the fastest growth rate since late 2023. Such consumer confidence is pivotal, as it drives businesses to increase production and investment.
Exports played another key role, with their growth reaching 7.5%, marking the most substantial rise seen in two years. This increase has been partially attributed to rising overseas demand amid global economic shifts.
On the business investment front, the numbers were more mixed. While spending on equipment exhibited significant growth, investments related to housing and non-residential buildings experienced declines, which somewhat tempered overall business investment growth. This divergence highlights the uneven nature of the economic rebound, hinting at underlying challenges within certain sectors.
Inflation rates, which have been a core concern for many Americans, showed signs of easing. The Federal Reserve's favored inflation metric, the Personal Consumption Expenditures (PCE) index, registered at a 1.5% annual rate, down from 2.5% during the previous quarter. This decrease reflects improved price stability, which is expected to resonate positively with consumers and policymakers alike.
Interestingly, core PCE inflation, which eliminates volatile categories such as food and energy, fell to 2.1%, down from 2.8%. These developments indicate progress in curbing inflationary pressures compared to the sharp peaks witnessed earlier.
Despite these optimistic indicators, public sentiment remains complicated. Many Americans still experience the repercussions of higher prices, as overall costs are now estimated to be approximately 20% higher than they were back in February 2021. This persistent concern over financial stability and affordability is forcing consumers to grapple with their purchasing decisions.
The Federal Reserve, taking note of these fluctuated inflation rates and steady economic growth, previously reduced its benchmark interest rate twice, once in September and again earlier this month. Many analysts are predicting yet another rate cut by December, reflecting the central bank’s readiness to facilitate economic activity.
Political dynamics, too, are influencing economic policy. Frustration among voters due to high prices has emboldened former President Donald Trump, who has resumed his role as the frontrunner within the Republican Party and claims the presidency once again following the recent elections. This political shift signals potential changes to economic policy, including Trump’s proposal to impose new tariffs on imports from various neighboring countries such as China, Mexico, and Canada. While Trump's tariffs aim to bolster U.S. manufacturing, many economists warn they could trigger increased costs for consumers, creating inflationary pressures instead.
The Commerce Department is expected to release its final report for third-quarter GDP on December 19, which will provide additional insights and details about the U.S. economy's performance.
Overall, the third-quarter economic data paints a picture of cautious optimism. A combination of strong consumer spending, bolstered exports, declining inflation rates, and steady growth continues to shape the U.S. economy amid shifting political landscapes and global economic challenges. What remains to be seen is how these entities will navigate the road ahead and whether newfound political strategies from the incoming administration could steer the economy toward heightened growth or introduce new uncertainties.
