The US economy surged ahead in the third quarter, marking its most rapid expansion in nearly two years, as robust wages in a tight labor market and resilient consumer spending defied recession forecasts that have lingered since 2022. According to advance estimates from the Commerce Department’s Bureau of Economic Analysis, the Gross Domestic Product (GDP) registered a remarkable annualized growth rate of 4.9% in the last quarter. This figure outpaced the 4.3% projection by economists surveyed by Reuters, signifying the swiftest rate of growth since the final quarter of 2021.
In contrast to the 2.1% growth witnessed in the April-June quarter, the current pace of economic advancement far exceeds the approximately 1.8% non-inflationary growth rate typically favored by Federal Reserve (Fed) officials. This latest data hints at the possibility of a carefully orchestrated “soft-landing,” a sentiment supported by key indicators in the second quarter, including gains in worker productivity and a moderation in unit labor costs.
Consumer spending, constituting over two-thirds of the US economic activity, emerged as the primary catalyst during this period. The robustness of the labor market remains a pivotal pillar supporting consumer expenditure. A separate report released by the Labor Department on Thursday revealed an uptick in new claims for state unemployment benefits, rising to 210,000 for the week ending October 21, up from the previous week’s 200,000.
While recent months have seen a slight dip in wage growth, it has managed to outpace inflation, bestowing households with augmented purchasing power. This factor likely played a role in propelling the third quarter’s accelerated growth.
The reported GDP data, however, is not expected to significantly impact the Fed’s near-term policy. The surge in US Treasury yields and the recent stock market selloff have further tightened financial conditions. According to CME Group’s FedWatch, current market indicators suggest that the Fed will maintain interest rates at their existing levels during the October 31 – November 1 meeting. Since March, the US central bank has already raised its benchmark overnight interest rate to a range of 5.25% to 5.50%.
The robust performance of the US economy in the third quarter exemplifies its resilience and potential for continued growth in the face of economic challenges.
On the whole, the robust figures from the fourth quarter provide considerable support to early prognostications. As long as consumer spending remains resilient, experts believe a recession could feasibly be averted, bolstering confidence in the resilience of the US economy.
Source: Reuters
