The US economy expanded 4.9% in the September quarter – its fastest pace in nearly two years, as higher wages from a tight labour market helped fuel consumer spending.
The Commerce Department's Bureau of Economic Analysis said in its advance estimate of third-quarter GDP that growth accelerated to more than double the second quarter’s 2.1%, defying warnings of a recession, with personal spending jumping 4%, also the most since 2021.
While the economy flourished, a measure of underlying inflation showed a slower-than-expected pace, the least since 2020. This factor, coupled with recent borrowing cost spikes, seems to be guiding the Federal Reserve's cautious approach to interest rate adjustments. The closely watched core personal consumption expenditures price index, which strips out food and energy costs, eased to a 2.4% growth rate during the quarter.
In the year since this article was published, the US economy has grown by 2.9% and the country has added nearly 3.2M jobs pic.twitter.com/jZTQYord1A
— Joey Politano ????️???? (@JosephPolitano) October 26, 2023
Federal Reserve officials are eyeing these results to decide on any potential rate hikes in the fourth quarter. "Growth this strong does not force a rate hike next week, but it means the Fed will indicate it is still contemplating higher rates," noted Chris Low, chief economist at FHN Financial. Market analysts are not expecting any drastic rate changes in the Federal Reserve's next meeting, given the sharp 10-year Treasury yield surge above 5% earlier this week.
The buoyant economy has also seen contributions from other sectors. Inventories added 1.3% to third-quarter growth. Government spending rose, while residential investment increased for the first time in over two years.
Official figures on Friday
These robust economic indicators will likely serve as a morale booster for President Joe Biden, who faces challenges in assuaging public concern over inflation and the effectiveness of his policies.
Official figures on inflation, consumer spending and income for the September quarter will be released Friday.