The US economy exhibited a slower-than-expected growth rate in the third quarter, as inflation showed signs of cooling, based on an advance estimate released Wednesday by the Bureau of Economic Analysis. Real gross domestic product (GDP) in the world's largest economy increased at an annual rate of 2.8% in September, while consensus expectations anticipated a 2.9% rise according to a survey compiled by Bloomberg.
This follows a growth of 3% in the second quarter. "Real GDP growth remains strong, and this summer’s fears of an imminent recession now seem grossly exaggerated," stated Francis Genereux, Principal Economist at Desjardins, in a report. Genereux highlighted that quarterly growth has remained robust since mid-2022, having only dropped below 2% once, which is remarkable given the prevailing high interest rates, geopolitical uncertainties, fragile consumer confidence, hurricanes, and labor disputes.
Personal consumption expenditures surged 3.7% in the third quarter, marking the largest increase since the first quarter of 2023 and surpassing market expectations of 3.3% growth. This growth was driven by significant increases in both goods and services, as reported by the BEA. Key contributors to the increase in goods included nondurables and motor vehicles and parts, while health care, along with food services and accommodations, led the services segment.
Government data also indicated that overall third-quarter real GDP received a boost from exports and federal government spending. On the inflation front, the PCE price index rose 1.5% in the quarter, down from a 2.5% rise in the previous three months. When excluding food and energy, the index saw a decrease in growth from 2.8% to 2.2% for the same period.
Economic growth is anticipated to decelerate, particularly in the fourth quarter, according to Genereux. He remarked, "The Federal Reserve is likely to continue easing its monetary policy, but should now proceed with 25-basis-point increments." Last month, the central bank's Federal Open Market Committee (FOMC) reduced its benchmark lending rate by 50 basis points, despite a Bloomberg poll suggesting a more modest quarter-percentage-point cut.
The FOMC's economic projection summary released in September revealed a revised US growth forecast for 2024 at 2%, down from 2.1%, while projecting sustained growth rates of 2% for both 2025 and 2026. Moreover, markets largely anticipate that policymakers will implement a 25 basis points interest rate cut in the upcoming week, as indicated by the CME FedWatch tool..