Oct 26, 2023 - Economy

U.S. economy sizzles in Q3, defying slowdown fears

Data: Bureau of Economic Analysis; Chart: Axios Visuals

The U.S. economy grew at its fastest pace in nearly two years in the third quarter, defying expectations of a slowdown.

Driving the news: Gross Domestic Product rose at a 4.9% annual rate during the July through September quarter, the Commerce Department said, the strongest since the final months of 2021 and powered by robust consumer spending.

By the numbers: Personal consumption expenditure spending rose at a 4% annual rate, adding 2.7 percentage points to overall growth. It reflects a summer surge in Americans' spending seen in a wide range of data.

  • There were also strong contributions to GDP from a buildup in business inventories (which added 1.3 percentage points to the total), and government spending (which added 0.8 points).

Flashback: This time a year ago there were widespread predictions of a recession in 2023. The new data — on the heels of solid 2%-plus readings in the first two quarters of the year — make the odds appear remote.

Yes, but: The continued resilience of growth poses a problem to the Federal Reserve, where officials believe a period of below-trend growth is necessary to fully vanquish high inflation.

  • Fed Chair Jerome Powell noted last week that that "economic growth has consistently surprised to the upside this year," but that "the record suggests that a sustainable return to our 2 percent inflation goal is likely to require a period of below-trend growth."
  • He said that continued above-trend growth "could warrant" further interest rate increases, though the Fed is likely to stand pat and leave rates unchanged at a policy meeting next week."

The bottom line: There are no signs of a downturn in this year's GDP economic data, contrary to the widespread expectations — but the outlook for 2024 is more uncertain.

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