Agencies
The U.S. economy expanded at a healthy 2.8% annual rate in the third quarter of the year, official data showed on Wednesday, as ebbing inflation and strong wage gains powered consumer spending ahead of a contentious presidential election set to turn on pocketbook issues.
The gross domestic product – the economy’s total output of goods and services – did slow slightly from its 3% growth rate in the April-June quarter, the Commerce Department’s Bureau of Economic Analysis said in its advance estimate.
The expansion was lower than market estimates. Economists polled by Reuters had forecast GDP advancing at a 3% pace. Estimates ranged from a 2% pace to a 3.5% rate.
However, the latest figures still reflect surprising durability just as Americans assess the state of the economy less than a week before Americans head to the polls on Nov. 5 to choose between Vice President Kamala Harris, the Democratic Party candidate, and former President Donald Trump.
Consumer spending, which accounts for about 70% of U.S. economic activity, accelerated to a 3.7% annual pace last quarter, up from 2.8% in the April-June period. Exports also contributed to the third quarter’s growth, increasing at an 8.9% rate.
On the other hand, growth in business investment slowed sharply on a drop in investment in housing and in nonresidential buildings such as offices and warehouses. But spending on equipment surged.
Wednesday’s report also contained some encouraging news on inflation.
The Federal Reserve’s (Fed) favored inflation gauge – called the personal consumption expenditures index, or PCE – rose at just a 1.5% annual pace last quarter, down from 2.5% in the second quarter and the lowest figure 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 of GDP growth for the third quarter of the year.
The U.S. economy has continued to expand in the face of the much higher borrowing rates the Fed imposed in 2022 and 2023 in its drive to curb inflation. Despite widespread predictions that the economy would succumb to a recession, it has kept growing, with employers still hiring and consumers still spending. And with inflation steadily cooling, the Fed has begun to cut interest rates.
The report "sends a clear message that the economy is doing well, and inflation is moderating – good news for the Federal Reserve,” said Ryan Sweet, chief U.S. economist at Oxford Economics.
Within the GDP data, a category that measures the economy’s underlying strength rose at a solid 3.2% annual rate from July through September, up from 2.7% in the April-June quarter.
This category includes consumer spending and private investment but excludes volatile items like exports, inventories and government spending.
Other recent economic reports have also pointed to a still-healthy economy. In a sign that the nation’s households, whose purchases drive most of the economy, will continue spending, the Conference Board said Tuesday that its consumer confidence index posted its biggest monthly gain since March 2021.
The proportion of consumers who expect a recession in the next 12 months dropped to its lowest point since the board first posed that question in July 2022.
At the same time, the nation’s once-sizzling job market has lost some momentum.
On Tuesday, the government reported that the number of job openings in the United States fell in September to its lowest level since January 2021. Employers have added an average of 200,000 jobs a month so far this year – a healthy number but down from a record 604,000 in 2021 as the economy rebounded 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. That gain, though, will probably have been significantly held down by the effects of Hurricanes Helene and Milton and by a strike at Boeing, the aviation giant, all of which temporarily knocked thousands of people off payrolls.
Despite the continued progress on inflation, average prices still far exceed their pre-pandemic levels, which has exasperated many Americans and posed a challenge to Harris’ prospects in her race against Trump. Most mainstream economists have suggested, though, that Trump’s policy proposals, unlike Harris’, would worsen inflation.