Although the US economy grew steadily in the third quarter, it was slightly lower than expected, 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.
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ToggleUS Economic Growth 2.8%, Slightly Lower than Expected
According to a report released by the US Department of Commerce on Wednesday, the US gross domestic product (GDP) in the third quarter, seasonally and inflation-adjusted, grew by 2.8% annually. This result was lower than the 3.1% expected by Dow Jones economists. In comparison, GDP growth in the second quarter reached 3%.
Consumption and Government Spending as Main Drivers, but Increased Imports Weigh on Growth
Personal consumption expenditure, a key indicator of economic activity, grew 3.7% in the third quarter, the highest increase since the first quarter of 2024. At the same time, federal government spending also became a major driver of growth, with this data surging 9.7%, including a 14.9% increase in defense spending.
However, the growth in imports offset some of the growth momentum. Imports grew 11.2% in the third quarter, and since imports are subtracted in GDP calculations, this growth has constrained further GDP increases. In comparison, exports grew 8.9%, but were unable to fully offset the impact of imports on the economy.
Muted Market Reaction, No Significant Fluctuations in Stock Futures and Treasury Yields
The market's reaction to this report was muted, with stock futures pointing to mixed openings before the market opened, and Treasury yields also remaining stable.
Allianz senior economist Dan North noted: "This is a perfect combination, strong economic growth and easing inflation. The market wants a more sustained low-inflation environment, because a lot of people are still feeling the pain of high inflation."
Inflation Easing, but FED May Continue to Cut Interest Rates
There is some good news on the inflation front. The Federal Reserve's preferred inflation indicator, the personal consumption expenditures (PCE) price index, grew 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, core PCE grew 2.2%, which Fed officials typically view as better reflecting long-term trends.
Despite the strong economic performance, the market generally expects the Federal Reserve to further cut the short-term borrowing rate by a quarter percentage point at its November 7 meeting, continuing its accommodative policy to address future economic challenges.
Consumer Spending Reliant on Savings and Credit, Savings Rate Declines
The personal savings rate declined to 4.8% in the third quarter, down from the previous 5.2%. This indicates that consumers are using savings and credit to support consumption, suggesting that the current level of consumer spending may be somewhat fragile and face challenges going forward.
Economic Issues in the Presidential Election Background: Trump and Clinton Economic Debate
Against the backdrop of the heated US presidential election, the economy has become a focal point of debate between the two parties. Democratic candidate Hillary Clinton has emphasized the economy's 10 consecutive quarters of growth, while Republican candidate Donald Trump has criticized the persistently high inflation, accusing Clinton of a 17% inflation rate during her tenure.
Although the pace of price increases has slowed significantly, the rise in the PCE index has affected consumers' purchasing power. Supporters of Kamala Harris emphasize the continued growth of the economy, but supporters of Trump believe that soaring prices still threaten the quality of life of ordinary Americans.
