US Q3 GDP Indicates Economic Growth Below Expectations Yet Strong Consumer Spending Continues to Provide Support
The U.S. economy showed stable growth in the third quarter, although slightly below expectations, benefiting from strong consumer spending. Despite rising interest rates and concerns about the sustainability of economic growth, consumer spending exceeded forecasts and became the main driver of the economy.
U.S. economic growth at 2.8%, slightly below expectations
According to a report released by the U.S. Department of Commerce on Wednesday, the gross domestic product (GDP) for the third quarter grew by 2.8% year-on-year, seasonally and inflation-adjusted. This result fell short of the Dow Jones economists’ expectation of 3.1%. In comparison, GDP growth in the second quarter reached 3%.
Growth in consumption and government spending, but rising imports dampen growth figures
Personal consumption expenditures, a key indicator of economic activity, grew by 3.7% in the third quarter, marking the highest increase since the first quarter of 2024. Meanwhile, federal government spending also became one of the main contributors to growth, surging by 9.7%, with defense spending skyrocketing by 14.9%. However, the increase in import figures offset some of the growth momentum. Imports rose by 11.2% in the third quarter, which are deducted in GDP calculations, thereby suppressing further increases in GDP. In contrast, while exports increased by 8.9%, they were unable to fully counteract the impact of imports on the economy.
Market reaction muted, stock futures and Treasury yields show little volatility
The market reacted little to this report, with stock futures indicating mixed movements before the opening and Treasury yields remaining stable. Allianz senior economist Dan North noted, “This is a perfect combination of strong economic growth and easing inflation. What the market wants is a longer-term low-inflation environment, as many are still feeling the pain of high inflation.”
Inflation eases, but the FED may continue to lower interest rates
There were some positive signs regarding inflation. The Federal Reserve’s preferred inflation indicator, the Personal Consumption Expenditures Price Index (PCE), increased by 1.5% in the third quarter, below the Fed’s 2% target, and significantly lower than the 2.5% in the second quarter. However, excluding food and energy, the core PCE grew by 2.2%, which Fed officials typically regard as a better reflection of long-term trends. Despite strong economic performance, markets widely expect that at the meeting on November 7, the Fed may further lower the short-term borrowing rate by a quarter percentage point, continuing to maintain an accommodative policy to address future economic challenges.
Consumer spending reliant on savings and credit, savings rate declines
The personal savings rate in the third quarter fell to 4.8%, down from 5.2% previously. This indicates that consumers are using savings and credit to support spending, which also suggests that current consumer spending may be somewhat fragile and could face challenges in the future.
Economic issues in the context of the presidential election: Trump and Harris in economic debate
In the context of the fiercely contested U.S. presidential election, the economy has become a focal point of debate between the two parties. Democratic candidate Kamala Harris emphasized that the economy has grown for ten consecutive quarters, while Republican candidate Donald Trump criticized persistent inflation, accusing Harris of overseeing a 17% inflation rate during her tenure. Despite a significant slowdown in the pace of price increases, the rise in the PCE index has affected consumers’ purchasing power. Supporters of Harris highlight the continued economic growth, while Trump supporters argue that soaring prices still threaten the quality of life for ordinary Americans
