US economy grows at solid 2.8% pace

The United States economy grew at a healthy 2.8 per cent annual rate from July through September, with consumers helping to drive growth despite the weight of still-high interest rates.

Wednesday’s report from the Commerce Department said the gross domestic product – the economy’s total output of goods and services – did slow slightly from its 3 per cent growth rate in the April-June quarter. But the latest figures still reflect surprising durability just as Americans assess the state of the economy in the final stretch of the presidential race.

Consumer spending, which accounts for about 70 per cent of US economic activity, accelerated to a 3.7 per cent annual pace last quarter, up from 2.8 per cent in the April-June period. Exports also contributed to the third quarter’s growth, increasing at an 8.9 per cent rate.

On the other hand, growth in business investment slowed sharply on a drop in investment in housing and in non-residential buildings such as offices and warehouses. But spending on equipment surged.

Wednesday’s report also contained some encouraging news on inflation. The US Federal Reserve’s favoured inflation gauge – called the personal consumption expenditures index, or PCE – rose at just a 1.5 per cent annual pace last quarter, down from 2.5 per cent in the second quarter and the lowest figure in more than four years. Excluding volatile food and energy prices, so-called core PCE inflation was 2.2 per cent, down from 2.8 per cent in the April-June quarter.

The report is the first of three estimates the government will make of GDP growth for the third quarter of the year. The US economy has continued to expand in the face of the much higher borrowing rates the Fed imposed in 2022 and 2023 in its drive to curb the inflation that surged as the United States bounced back with unexpected strength from the brief but devastating COVID-19 recession of 2020. Despite widespread predictions that the economy would succumb to a recession, it has kept growing, with employers still hiring and consumers still spending. And with inflation steadily cooling, the Fed has begun to cut interest rates.

The report “sends a clear message that the economy is doing well, and inflation is moderating – good news for the Federal Reserve”, said Ryan Sweet, chief US economist at Oxford Economics.

Within the GDP data, a category that measures the economy’s underlying strength rose at a solid 3.2 per cent annual rate from July through September, up from 2.7 per cent in the April-June quarter. This category includes consumer spending and private investment, but excludes volatile items like exports, inventories and government spending.

“Today’s GDP report shows how far we’ve come since I took office — from the worst economic crisis since the Great Depression to the strongest economy in the world,’’ President Joe Biden said.

– AP