Q3 GDP Growth Rate Preliminary Estimate at 2.8%
Below Expectations but Steady Growth Continues
Growth Driven by Consumption, Supported by Exports and Government Spending
Core PCE Inflation Slows to 2.2%
October Private Sector New Jobs Exceed Expectations at 233,000
The United States continued its robust growth in the third quarter of this year, driven by strong consumer spending. Consumer expenditures increased at the largest rate since early last year, while exports and government spending also rose, fueling strong growth.
According to the U.S. Bureau of Economic Analysis (BEA) on the 30th (local time), the advance estimate of real Gross Domestic Product (GDP) for the second quarter showed a 2.8% annualized growth rate compared to the previous quarter.
Although this was slightly below the previous quarter's growth rate of 3.0% and the Dow Jones and Wall Street forecast of 3.1%, it significantly exceeded the U.S. potential growth rate, estimated to be in the high 1% range. Historically, this growth rate is considered high. During the previous expansion period of the U.S. economy from the second quarter of 2009 to the fourth quarter of 2019, the average annual GDP growth rate was 2.5%.
Strong consumer spending was the driving force behind economic growth. Household spending, which accounts for two-thirds of the U.S. real economy, increased by 3.7% compared to the previous quarter. This surpassed the 2.8% growth in the second quarter and marked the largest increase since early last year. Household expenditures rose mainly on automobiles, household furniture, and recreational items.
Additionally, strong exports and government defense spending supported solid growth. Nonresidential fixed investment by businesses increased by 3.3%, though the growth rate slightly slowed compared to the second quarter.
Inflation continued to ease. The Personal Consumption Expenditures (PCE) price index rose by 1.5% in the third quarter, down from 2.5% in the second quarter. The core PCE price index, which excludes food and energy to show the underlying inflation trend, also declined from 2.8% to 2.2% during the same period. This level is close to the Federal Reserve's inflation target of 2%.
With the U.S. economy showing strong growth in the third quarter, the outlook for a "no landing" scenario?where growth continues without a soft landing?is gaining traction. Previously, experts had expected the U.S. economic growth rate to gradually decline due to the high-intensity tightening that lasted for two and a half years from March 2022 until the rate cuts in September. There were also recession forecasts.
Karl Weinberg, an economist at High Frequency Economics, stated, "There is almost no problem with the third quarter GDP growth picture," adding, "What the economy needs now is a steady normalization of interest rates at a moderate pace." Ryan Sweet, U.S. chief economist at Oxford Economics, said, "This report sends a clear message that the economy is performing well and inflation is easing," calling it "good news for the Fed."
The employment data released that morning also showed strength. According to the employment report from ADP, a U.S. private labor market research firm, private sector job creation in October increased by 233,000. This significantly exceeded both the expert forecast of 110,000 and the previous month's figure of 159,000. It was the largest increase in one year and three months since July of last year. This defied market expectations that job growth would slow due to the impacts of Hurricanes Hurlin and Milton. However, more accurate labor market trends are expected to be confirmed in the U.S. Department of Labor's October employment report to be released on the 1st of next month.
The market expects the Fed to continue its gradual rate-cutting stance regardless of this growth rate announcement. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market on this day reflected a 94.7% probability that the Fed will cut rates by 0.25 percentage points in November. The probability of a rate hold was 5.3%.
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