According to a report released by the US Department of Commerce on Wednesday, October 30th, the seasonally adjusted Gross Domestic Product (GDP) for the third quarter increased by 2.8% year-on-year. This figure, although below expectations, still highlights the stable growth of the US economy.
Strong consumer spending, exports, and government expenditures have contributed to maintaining economic growth. Consumers have shown strong spending on items such as cars and prescription drugs.
Economists surveyed by Dow Jones had previously expected the US economy to grow by 3.1% in the third quarter.
Personal consumption expenditures, which account for the largest share of economic activity, increased by 3.7% in the third quarter, marking the largest growth since the first quarter of 2023 and surpassing the 2.8% growth in the second quarter. Government spending rose by 9.7%, driven by a surge of 14.9% in defense spending, the largest increase since 2003.
However, economic growth in the third quarter was constrained by trade data. Imports grew by 11.2%, dragging down GDP growth and offsetting the 8.9% increase in exports.
Despite the seemingly strong economy, inflation remains above the target. The Federal Reserve is expected to consider further interest rate cuts at its meeting in November.
There is some good news on the inflation front, as the Personal Consumption Expenditures (PCE) Price Index, a key inflation indicator preferred by the Federal Reserve, rose by 1.5% in the third quarter, below the Fed’s target of 2% and significantly lower than the 2.5% increase in the second quarter. However, excluding food and energy, the core PCE still rose by 2.2%.
Consumers have been using savings and credit to boost consumption. The personal savings rate in the third quarter dropped from a significant 5.2% to 4.8%.
Non-residential fixed investment increased by 3.3% from the previous quarter, reaching the lowest level in a year and was dragged down by construction spending. However, boosted by the transportation industry, business equipment investment reached its highest level since the second quarter of 2023.
The real estate market remained weak in the third quarter, indicating that high borrowing costs are weighing on the industry and continue to put pressure on those looking to buy homes. Residential investment decreased by 5.1%, marking the second consecutive quarter of decline and the largest drop since the end of 2022, as the real estate market continues to be impacted by high mortgage rates and soaring home prices.
Spending on computers and peripheral equipment surged by 32.7%, marking the largest increase since 2020.