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The US economy expanded faster than expected in the third quarter, growing at its quickest pace in almost two years in the latest sign of the country’s economic resilience despite high interest rates.
Strong consumer spending was the main driver of a 4.9 per cent annualised increase in gross domestic product, according to preliminary figures from the commerce department’s Bureau of Economic Analysis.
That was a jump from a 2.1 per cent rate in the second quarter, and the strongest figure since the fourth quarter of 2021. Economists on average had predicted a rate of 4.3 per cent.
Several economists said that while they expect growth to slow from the bumper third-quarter pace, the overall outlook remains strong.
“The underlying story is of a resilient consumer supported by a strong labour market,” said Eric Winograd, director of developed market economic research at AllianceBernstein. “As long as the consumer remains strong, the economy as a whole will.”
Consumer spending rose at an annualised rate of 4 per cent, up from just 0.8 per cent in the second quarter with solid growth across both goods and service sectors.
Business spending on inventories, which tends to be volatile, also provided a substantial boost in the third quarter that is likely to unwind in the fourth quarter.
Tom Simons, an economist at Jefferies, said: “Inventories set a high bar that will be hard to surpass, and with student loan payments restarting, it would be shocking if we saw this kind of growth sustained going forward.” A repayment moratorium for student borrowers ended this month.
The data comes as the Federal Reserve prepares for a meeting next week to decide interest rates. The central bank has been trying to use higher rates to bring inflation back towards its 2 per cent target without causing a sharp deterioration in the economy.
The GDP figures are unlikely to drastically influence next week’s decision, as they are backward-looking compared with monthly data such as inflation and payrolls.
The Fed is widely expected to hold rates steady at a 22-year high, to give policymakers more time to assess the effect of their previous rate increases and recent events such as a sharp sell-off in bond markets.
Still, the growth data provide yet another reminder of the longer-term strength of the economy and support expectations that rates will stay elevated for an extended period. Longer-dated 10- and 30-year Treasury bonds, which have sold off drastically in recent weeks, are particularly sensitive to growth expectations.
Strong headline GDP figures can also influence consumer and business sentiment, which can have a knock-on effect on behaviour and inflation expectations.
Initial market reactions to the GDP data were muted, with modest dips in Treasury yields and a slight uptick in stock market futures immediately following the release.
The 10-year Treasury yield edged lower by 0.04 percentage points to 4.91 per cent. Expectations of Fed policy in the futures market were stable, with investors betting there is only a 27 per cent chance that the Fed will raise interest rates again this year.
Some sectors of the economy have been knocked by the increase in interest rates, particularly the property sector. Sales of existing homes fell to their slowest pace in 13 years in September as mortgage rates rose.
Consumer spending has been much more resilient than most economists had expected this year, with strong retail sales data earlier this week helping to briefly push the 10-year Treasury yield to a 16-year high.
Sophia Drossos, economist at Point72 Asset Management, said consumers had been helped by a combination of rising wages and slowing inflation.
“The pace of consumption is probably going to moderate . . . [but] if we continue to see decline in inflation while the job market is healthy, consumers will remain on a solid footing.”
Thursday’s figures are based on preliminary data. The BEA will publish a second estimate late next month, and a third figure in December.
