by WASHINGTON (AP) — The U.S. economy grew at a healthy 2.8% annually between July and September, with consumers helping to drive growth despite the burden of still-high interest rates.
The report released Wednesday by the Commerce Department said that gross domestic product – the economy’s total output of goods and services – slowed slightly from its 3% growth rate in the April-June quarter. But the latest numbers still reflect surprising durability, just like Americans assess the state of the economy in the home stretch of the presidential race.
Consumer spending, which accounts for about 70% of U.S. economic activity, accelerated to an annual pace of 3.7% last quarter, up from 2.8% in the April-June period. Exports also contributed to third-quarter growth, increasing at a rate of 8.9%.
In contrast, business investment growth slowed sharply due to a decline in investment in housing and non-residential buildings such as offices and warehouses. But equipment costs have increased.
Wednesday’s report also contained encouraging news on inflation. The Federal Reserve’s preferred inflation gauge — called the personal consumption expenditures index, or PCE — rose at an annual rate of just 1.5% last quarter, compared with 2.5% in the second quarter and the figure the lowest 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.
This report is the first of three estimates the government will make on GDP growth for the third quarter of the year. The American economy continued to grow despite the crisis. much higher borrowing rates imposed by the Fed in 2022 and 2023 in its bid to curb inflation that surged as the United States rebounded with unexpected strength from the brief but devastating 2020 recession due to COVID-19. Despite widespread predictions that the economy would succumb to a recession, it has continued to grow, with employers still hiring and consumers still spending. And with inflation steadily slowing, the Fed began cutting 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 underlying strength of the economy grew at a solid annual rate of 3.2% from July to September, compared with 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.
“Today’s GDP report shows how far we have come since I took office, from the worst economic crisis since the Great Depression to the strongest economy in the world,” President Joe Biden said.
Other recent economic reports have also highlighted a still healthy economy. In a sign that the nation’s households, whose purchases drive much of the economy, will continue to spend, the Conference Board said Tuesday that its consumer confidence index recorded its biggest monthly gain since March 2021. The share of consumers who expect a recession in the next 12 months fell to its lowest point since the council first asked this question in July 2022.
At the same time, the country’s once vibrant job market has lost some of its momentum. On Tuesday, the government announced that the number of job openings in the United States fell in September to its lowest level since January 2021. And employers have added an average of 200,000 jobs per 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 announce that the economy added 120,000 jobs in October. This gain, however, will likely have been significantly dampened by the effects of Hurricanes Helen and Milton and a strike at Boeing, the aviation giant, all of which temporarily cut wages for thousands of people.
Despite continued gains in inflation, average prices are still well above their pre-pandemic levels, which has infuriated many Americans and posed a challenge to Vice President Kamala Harris’ prospects in her race against the former President Donald Trump. Most mainstream economists, however, have suggested that Trump’s policy proposals, unlike those of Harris, would worsen inflation.
At its last meeting last month, the Fed was satisfied enough with its progress in fighting inflation – and concerned enough about the slowing labor market – to cut its benchmark rate by a big half a percentage pointits first and largest rate cut in more than four years. At its meeting next week, the Fed is expected to announce another rate cut, this one by a more usual quarter point.
Central bank policymakers also indicated they planned to cut their key rate again at their final two meetings this year, in November and December. And they’re looking at four more rate cuts in 2025 and two in 2026. The cumulative result of the Fed’s rate cuts, over time, will likely be lower borrowing rates for consumers and businesses.
