The US economy seems to have pulled off a remarkable and historic achievement. Yet with just days to go before the presidential election, the majority of voters say they remain displeased with the state of the economy.
Gross domestic product, which measures all the goods and services produced in the economy, expanded at an annualized rate of 2.8% in the third quarter, the Commerce Department said Wednesday. That’s a slightly weaker pace than the second quarter’s 3% rate and above the 2.6% rate economists projected in a FactSet poll. GDP is adjusted for seasonal swings and inflation.
Wednesday’s report comes after earlier data showed the economy added a whopping 254,000 jobs in September, inflation is a whisper away from the Federal Reserve’s 2% target and consumer confidence jumped this month by the fastest clip since March 2021, according to The Conference Board — all signs of a robust economy.
“I think we should declare a soft landing now,” said James Bullard, former president of the Federal Reserve Bank of St. Louis, in an interview with CNN earlier this month.
He’s one of several economists and officials who told CNN the economy has finally pulled off that scenario, in which inflation is tamed without a recession — an exceptionally rare achievement.
Despite all that, consumer moods remain gloomier than in pre-pandemic times, according to surveys. One popular explanation for that paradox is simply that price levels are now much higher than what they were in 2019 before the pandemic. While the Fed’s aggressive action to slow that inflation has pulled down the pace of price increases since reaching a four-decade peak in 2022, the lingering trauma of high inflation remains.
A recent study from the Brookings Institution, released last week, argued that Americans feel so gloomy amid a strong economy also because society is more partisan these days, media outlets have a bias towards bad news and “the correlation between age and low sentiment may be driving down perceptions.”
Consumers keep spending
Regardless, American shoppers continued to fuel economic growth in the third quarter with their spending, according to Wednesday’s GDP report. That marked by far the biggest contributor to growth in the third quarter. Consumer spending accounts for about 70% of economic output. Spending accelerated sharply in the third quarter, driven by purchases of big-ticket items, while spending on services eased a bit.
Businesses continued to invest during the July-through-September period, though at a slightly softer pace than earlier in the year. Government spending at both the federal and state level also contributed to third-quarter growth.
The Fed slashed interest rates in September for the first time in more than four years, by a bold half point. It was a sign that Fed officials felt confident enough that inflation had come under control just enough to begin paring back rates to shift more attention to the job market. The Fed is tasked by Congress to stabilize prices and maximize employment through its interest rate policy.
US growth outpaces that of other advanced economies
President Joe Biden touted the US economy’s latest show of strength, saying Wednesday the 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.”
A White House official on a call with reporters Wednesday morning said annual average economic growth during the Biden-Harris administration has been stronger than any administration this century.
The International Monetary Fund expects US GDP to expand at an annualized 2.5% rate in the fourth quarter, higher than the IMF’s July forecast. That would be the strongest among the Group of Seven major advanced economies.
