US economic growth was slightly lower in the third quarter than previously reported, but still robust, underscoring the sheer strength of America’s economy during the summer.
Gross domestic product, the broadest measure of economic output, expanded at an annualized 4.9% rate from July through September, the Commerce Department reported Thursday. That’s a slower pace of growth than the 5.2% reported in the second estimate.
Growth in the third quarter was the strongest in nearly two years as Americans spent on live concerts, films, and goods. The US economy has slowed from the red-hot pace set earlier in the year, but both hiring and spending remain solid.
The department’s final estimate factored in weaker consumer spending, inventory investment and exports, while revising government outlays and business investment higher. Consumer spending, which accounts for about two-thirds of economic output, was revised down to 3.1% from 3.6%.
Investors are bullish that the Federal Reserve is poised to cut interest rates in just a few months, though officials have recently pushed back on that optimism. Some also believe the economy is in the midst of sticking a soft landing, a scenario in which inflation returns to the Fed’s 2% target without a sharp rise in unemployment.
Lower interest rates on the horizon
Rate cuts seem to be the talk of the town nowadays. The Fed’s latest set of economic projections released earlier this month showed that central bank officials have penciled in three rate cuts next year.
Investors and the Fed are relieved that inflation is easing again after briefly picking up earlier in 2023. The closely watched Consumer Price Index rose 3.1% in November from a year earlier, down from October’s 3.2%. The CPI jumped up to 3.7% in the summer due to rising energy costs, which have fallen sharply in recent weeks.
The Commerce Department releases November data on household spending, income and the Fed’s preferred inflation gauge Friday.
What’s not clear is when rate cuts will ultimately begin. That first cut could come in March, according to futures. But Fed officials have been trying to give excited markets a reality check.
“We aren’t really talking about rate cuts,” New York Fed President John Williams told CNBC recently.
Chicago Fed President Austan Goolsbee told CBS Sunday that inflation remains above target and that “it’s an overstatement to be counting the chickens.”
A solid US economy… for now
The broader economy has remained remarkably resilient, and while it has softened since the summer, it hasn’t fallen off a cliff.
Some think America’s economic strength could have complicated the Fed’s job of tamping down inflation further. But price hikes continued to cool after the summer.
The Atlanta Fed is currently projecting fourth-quarter GDP to register at 2.7%, a weaker pace of growth than in the prior three-month period, but still solid.
The US economy’s resilience in the face of the highest interest rates in 22 years has raised hopes that the Fed may be on the cusp of achieving a historically difficult task: squashing inflation without jacking up unemployment.
“An improbable ‘soft-landing’ for the US economy seems more likely next year,” John Min, chief economist at Monex USA, wrote in a recent note.
New applications for unemployment assistance, which typically offer early signs of any shifts in the job market, remain low. Jobless claims ticked higher last week but came in below what economists were expecting.
There were 205,000 initial claims for unemployment insurance during the week that ended on December 16. That’s up 2,000 from the prior week’s upwardly revised total of 203,000, the Labor Department said in a separate report Thursday.
Still, a slew of economic hurdles lie ahead. Americans continue to rack up debt as they draw down their pandemic savings. Nearly nine million Americans missed their first student-loan payment after the pandemic-related pause ended this fall.
