The latest GDP report shows that the U.S. economy has weathered persistent price pressures, high borrowing costs and political uncertainty.
The U.S. economy expanded at a solid pace in the third quarter, thanks to a general increase in consumer spending and a continued cooling of inflation.
The second estimate of data released Wednesday by the U.S. Bureau of Economic Analysis showed that U.S. GDP grew 2.8 percent in the third quarter. Consumer spending, the economy’s main growth engine, rose 3.5 percent, the highest this year.
While still strong, household spending was revised down slightly from the preliminary figure, reflecting slightly weaker spending on goods. Meanwhile, business investment in research and development was revised upwards.
The GDP report suggests that the resilience of the economic expansion has withstood persistent price pressures, high borrowing costs and political uncertainty. While progress on inflation has recently leveled off, the Federal Reserve has begun to cut interest rates.
With Trump back in the White House, U.S. businesses and consumers are now waiting for next year to roll out his economic agenda.
Gross Domestic Income (GDI), the government’s other main measure of economic activity, grew by 2.2%, after second quarter growth was revised to 2%.GDP measures spending on goods and services, while GDI measures the income generated and the costs incurred to produce those goods and services. The average of these two growth metrics was 2.5% in the third quarter.
Trump’s victory has added momentum to the recent rise in stock prices, in part because many traders believe his economic agenda will continue to drive corporate profit growth. The president-elect vowed to drastically cut corporate taxes and impose punitive tariffs on foreign goods, in addition to putting Wall Street executives at the helm of the Treasury and Commerce departments.
On the other hand, some economists are concerned that Trump’s fiscal plans will put upward pressure on inflation.
Inflation moderating
The report also showed that the PCE price index, the Fed’s favored metric, rose 1.5 percent year-over-year in the third quarter. Excluding food and energy, the core PCE gauge rose 2.1% year-over-year.
Economists are watching for the PCE data to be released later today. The market currently expects the core PCE price index to have increased 2.8% year-over-year in October.
Some Fed officials have said they are in no hurry to cut interest rates as long as the labor market remains strong and the economy continues to grow. While job growth has slowed, other indicators suggest the economy is resilient and the possibility of a recession is declining.
Data from the U.S. Department of Labor showed that initial jobless claims fell to 213,000 last week, lower than the expected 216,000, and the previous value was revised up to 215,000. It showed that the U.S. economy has avoided mass layoffs despite the cooling job market. Renewed jobless claims reached the highest level in three years.
So far this year, labor market data have shown mixed signs, complicating the Federal Reserve’s interest rate decisions in the process of balancing employment and inflation targets. Currently, each unemployed U.S. worker corresponds to roughly one job opening, down from two workers in mid-2022. This year, the unemployment rate has fallen slightly from 3.7% at the end of 2023 to just over 4%. On the other hand, the U.S. economy has averaged more than 100,000 new jobs per month this year, and jobless claims have not shown a significant increase in layoffs.
Revised GDP data showed that U.S. economic growth in the third quarter was tempered by volatile trade data, with net exports falling by 0.57 percentage points and inventories dropping by 0.11 percentage points.
Other government data released Wednesday showed the U.S. merchandise trade deficit narrowed to $99.1 billion in October from its highest point in more than two years. Economists believe businesses are stockpiling imported goods in anticipation of new tariffs next year.
