The U.S. economy showcased a strong performance in the third quarter, growing at a 4.9% annual pace and outpacing expectations. This growth is particularly notable given the current global and domestic challenges, such as higher interest rates and ongoing inflation pressures. “The consumer went on a shopping spree in the third quarter,” said Michael Arone, chief investment strategist for U.S. SPDR Business at State Street Global Advisors. Consumer spending, increased inventories, exports, residential investment, and government spending fueled the economic growth.
The U.S. Gross Domestic Product (GDP), a measure of all goods and services produced in the country, grew at a 4.9% seasonally adjusted annualized pace from July to September, compared to a 2.1% pace in the second quarter, as reported by the Commerce Department. Economists surveyed by Dow Jones had predicted a 4.7% acceleration in GDP, which is adjusted for inflation.
As measured by personal consumption expenditures, consumer spending significantly contributed to this growth, increasing by 4% in the third quarter, compared to a 0.8% rise in the second quarter. This consumer spending accounted for 2.7 percentage points of the total GDP increase. Other notable contributors to the GDP growth included inventories (1.3 percentage points), gross private domestic investment (8.4%), and government spending and investment (4.6%).
While the U.S. economy has proven resilient in various challenges, most economists anticipate a slowdown in the coming months. However, they generally believe the U.S. can avoid a recession unless unforeseen shocks occur.
The U.S. economy’s performance in the third quarter of 2023 is a testament to its resilience in the face of numerous challenges. While the road ahead may see a slowdown in growth, the strong consumer spending and other contributing factors have set a positive precedent. As noted by Matthew Ryan, head of market strategy at Ebury, “The bottom line for the Federal Reserve is that no recession is in sight, and policymakers can be content in the knowledge that they can keep interest rates higher for longer, without triggering a meltdown in the U.S. economy.”
