THE US economy grew at a surprisingly strong 4.3% annual rate in the third quarter, the most rapid expansion in two years, driven by consumers who continue to spend in the face of ongoing inflation. US gross domestic product from July through September — the economy’s total output of goods and services — rose from its 3.8% growth rate in the April-June quarter, the Commerce Department said on December 23 in a report delayed by the government shutdown. Economists surveyed by the data firm FactSet forecast growth of just 3% in the period.
As has been the case for most of this year, the consumer is providing the fuel that is powering the US economy. Consumer spending, which accounts for about 70% of US economic activity, rose to a 3.5% annual pace last quarter. That’s up from 2.5% in the AprilJune period. A number of economists, however, believe the growth spurt may be short-lived with the extended government shutdown dragging on the economy in the fourth quarter, as well as a growing number of Americans fatigued by stubbornly high inflation.
A survey published by the Conference Board on December 23 showed that consumer confidence slumped close to levels not seen since the US rolled out broad tariffs on its trading partners in April. The seemingly divergent paths between how consumers say they are feeling and how much money continues to be spent may be more evidence of what is known as a “ K-shaped economy ”. In that situation, the income of wealthier Americans is on the rise, due to stock market gains and growing investments, while lower-income households struggle with stagnant pay and higher prices.
The latest GDP report also showed that inflation remains higher than the Federal Reserve would like. The Fed’s favored inflation gauge — called the personal consumption expenditures index, or PCE — climbed to a 2.8% annual pace last quarter, up from 2.1% in the second quarter.