Wednesday’s report, showing the continued streak of GDP growth, reflected the willingness of American consumers to keep opening their wallets, despite lingering inflation pressures.
Consumer spending accelerated to 3.7%, while one closely watched proxy for demand that strips out inventories, trade and government spending – jumped to 3.2% from 2.7% in the last quarter.
Residential investment, however, slipped by 5.1%.
“Where it counts, growth performed incredibly well in the third quarter,” said Tom Porcelli, chief US economist at PGIM Fixed Income. “It’s very hard to really practically think of having a recession over the near to medium term.”
The data, which covers the period between July and September, confirms the strength of the world’s largest economy, which has repeatedly defied expectations of a recession despite the Fed holding interest rates high to stamp out inflation.
The US central bank cut rates by a larger than usual half-point last month – its first reduction since 2020 – leaving the benchmark at 4.75 to 5%.
Even as inflation has lingered, however, US consumer spending has remained robust, buoyed by the country’s healthy jobs market.
The unemployment rate has risen to 4.1% from its multi-decade low of 3.4% in 2023.
Economists say the uptick in joblessness is a result of more workers entering the labour market because of higher immigration.
That has helped ease wage pressures, and in turn inflation, with limited damage to the jobs market – bringing into sight a so-called soft landing for the economy as the Fed begins to cut rates.
Data earlier on Wednesday showed private sector employers added a net 233,000 roles in October, the biggest increase since July 2023.
The non-farm payrolls report on Friday is expected to show jobs growth fell to 113,000 last month in a figure that will probably reflect disruptions caused by severe hurricanes that lashed several states in the country’s southeast.
The US has outperformed its peers among the world’s strongest economies.
The IMF recently forecast growth from the US of 2.8% this year and 2.2% next year, versus 3.2% in both years for the global economy as a whole.
US consumer confidence has also been strong, and hit a nine-month high in October, according to a report on Tuesday from the Conference Board.
“American consumers are proving yet again that they are world-leading consumers – ‘nobody can touch us’,” said David Kelly, chief global strategist at JPMorgan Asset Management.
The report showed that the proportion of consumers expecting a recession over the next 12 months fell to its lowest level since the question was first asked in July 2022. The percentage who thought the economy was already in a contraction also fell.
Stock market moves were muted on Wednesday, with the S&P 500 up 0.3% around midday in New York and the Nasdaq Composite rising 0.2% from its record closing level in the previous session.
In government bond markets, the yield on the policy-sensitive two-year Treasury was up 0.03 percentage points to 4.15% while the yield on the 10-year note was flat at 4.27%. Yields fall as prices rise.
Written by: Colby Smith and Harriet Clarfelt in New York
© Financial Times
