Economy Grows 2.8% as Consumer Spending Drives Expansion

The U.S. economy expanded at a 2.8 percent annual rate from July through September, the Commerce Department reported Wednesday, driven largely by resilient consumer spending.

Despite high interest rates and global uncertainties, Americans continued to spend, propelling growth in the face of persistent recession predictions and showing a solid economic performance.

Consumer spending, accounting for roughly 70 percent of U.S. economic activity, grew at an annualized rate of 3.7 percent last quarter, a notable increase from 2.8 percent in the April-June period.

Exports also contributed, with an impressive 8.9 percent rise, adding strength to the quarter’s growth. In contrast, business investment showed mixed results: a downturn in housing and nonresidential buildings slowed overall investment, although spending on equipment rose sharply, reflecting confidence in certain sectors.

Encouraging Inflation Signs

The Federal Reserve’s preferred inflation gauge, the personal consumption expenditures (PCE) index, rose by just 1.5 percent annually, down from 2.5 percent in the prior quarter, the lowest rate in over four years.

Excluding volatile food and energy costs, core PCE inflation was 2.2 percent, a decrease from 2.8 percent in the previous quarter, signaling moderating inflation.

“The report sends a clear message that the economy is doing well, and inflation is moderating,” said Ryan Sweet, chief U.S. economist at Oxford Economics, an assessment that aligns with the Fed’s progress in curbing inflation and stabilizing economic conditions.

Consumer Confidence

Recent economic reports also indicate a healthy economic outlook. The Conference Board’s consumer confidence index showed its largest monthly gain since March 2021, and the proportion of consumers expecting a recession reached its lowest level since mid-2022.

Although job growth has slowed, with employers adding an average of 200,000 jobs per month this year compared to 604,000 in 2021, hiring has remained steady.

The Labor Department’s October report, due Friday, is expected to show a gain of 120,000 jobs, a figure impacted by recent hurricanes and a Boeing strike.

Rate Adjustments Expected

The Fed, aiming to manage inflation without stalling growth, cut its benchmark rate by half a percentage point last month, its largest cut in over four years.

The Fed is anticipated to announce a further quarter-point cut next week, following a trend toward gradual rate reductions through 2026. This strategy could lower borrowing costs, benefiting consumers and businesses across various sectors.

As the economy heads into the final months of 2024, inflation’s steady decline and robust consumer spending provide a positive backdrop for policymakers.

However, the lingering effects of high prices and a cooling job market may weigh on Americans’ economic outlook, influencing the upcoming presidential race in critical ways.

This article includes reporting from The Associated Press