Surprising strength. US economy's rapid 4.9% growth defies expectations

26.10.2023 posted by Admin

The US economy's expansion surged in the third quarter

The US economy surprised everyone in the third quarter by growing faster than anticipated, marking its most rapid expansion in nearly two years. This is a clear signal of the country's economic strength, even in the face of elevated interest rates.

Preliminary data from the Bureau of Economic Analysis, part of the commerce department, reveals that robust consumer spending played a pivotal role in achieving a remarkable 4.9% annualized increase in the gross domestic product. This jump is a significant leap from the 2.1% growth rate observed in the preceding quarter and represents the most robust performance since the fourth quarter of 2021. Economists, on average, had projected a 4.3% growth rate.

Numerous economists believe that while the exceptional pace of growth witnessed in the third quarter is unlikely to persist, the overall economic outlook remains positive.

Eric Winograd, the Director of Developed Market Economic Research at AllianceBernstein, commented, "The fundamental narrative here is that the consumer has proven to be remarkably resilient, buoyed by a robust job market. As long as consumer strength endures, the broader economy will remain on solid ground."

Consumer spending surged at an annualized rate of 4%, a notable improvement from the meager 0.8% observed in the second quarter. This increase was witnessed across various sectors, including goods and services.

The business sector also contributed significantly to the third-quarter boost, particularly in terms of inventory spending. However, this category tends to be volatile and is expected to balance out in the fourth quarter.

Tom Simons, an economist at Jefferies, pointed out, "The high level of inventory spending in the third quarter sets a challenging benchmark to maintain, and with the resumption of student loan repayments, it would be surprising to see this level of growth sustained in the future." It's worth noting that the moratorium on student loan payments concluded this month.

This data emerges at a time when the Federal Reserve is gearing up for a forthcoming meeting to make decisions regarding interest rates. The central bank has been employing higher interest rates to steer inflation back towards its 2% target while striving to avoid causing a severe downturn in the economy.
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