The United States economy recorded solid growth in the third quarter, driven by increased consumer purchases and federal defense spending in a pre-election phase. Gross Domestic Product (GDP), adjusted for inflation, advanced at an annualized rate of 2.8%, after growing 3% in the previous quarter, according to the initial estimate released by the government on Wednesday.
Household consumption, the main component of economic activity, grew 3.7%, the fastest pace since the beginning of 2023, highlighted by the increase in consumer goods, including automobiles, home furniture and recreational items.
Meanwhile, a key indicator of underlying inflation rose 2.2%, aligning with the Federal Reserve’s target, according to the U.S. Bureau of Economic Analysis.
The performance of the world’s largest economy points to strong domestic demand, even as the Federal Reserve gradually eases its tightest monetary policy in decades. The report arrives on the eve of the elections, a time when American voters compare economic figures with their own finances, pressured in recent years by the high cost of living.
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“Almost nothing is wrong with this scenario,” said Carl Weinberg and Rubeela Farooqi, economists at High Frequency Economics, in a note. “A steady normalization of rates at a moderate pace is what the economy needs.”
After the release of GDP data, the S&P 500 opened lower, the yield on two-year Treasury bonds rose and the dollar fluctuated. A separate report from the ADP Institute showed strong hiring in the private sector in October.
GDP growth in the third quarter was limited by fluctuations in foreign trade, with net exports reducing 0.56 percentage points of the total. Importers have increased the volume of consumer goods, in part fearing a possible prolonged strike by port workers. Stocks also subtracted 0.17 percentage points.
Government spending on the rise
Despite these factors, an underlying growth trend index, which combines consumption and business investment, advanced 3.2%, the biggest advance this year. Government spending rose 5% annualized, highlighted by the largest increase in federal spending since 2021. National defense spending soared at a rate of 14.9%, the largest growth since 2003, while federal non-defense spending rose at the fastest rate. fast in a year.
Non-residential fixed business investment increased 3.3% annually, the slowest pace in a year, affected by infrastructure spending. On the other hand, business spending on equipment was the strongest since the second quarter of 2023, driven by the transportation sector.
Investments in computers and peripheral equipment jumped 32.7%, the biggest increase since 2020, reflecting the continued boom in artificial intelligence.
The residential investment sector fell 5.1% annualized, the biggest drop since the end of 2022, amid pressures from high mortgage rates and high prices in the real estate market.
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These numbers indicate that the Federal Reserve is expected to maintain the rate cutting course in the coming quarters, including at next week’s meeting. The data is a boost for Vice President Kamala Harris in the final days of the campaign against former President Donald Trump.
Year-on-year, GDP grew 2.7%, sustaining a level above 2.5% for six consecutive quarters — “the longest streak of solid growth since 2006,” noted Bill Adams, chief economist at Comerica Bank.
However, growth has not been distributed equitably, with the share of income going to corporate profits still well above historical levels. Inflation-adjusted personal income, after taxes, rose 1.6% annualized, the smallest increase in a year, according to GDP data.
