The American economy grew solidly again in the third quarter of this year, reinforcing the belief that the U.S. is managing to avoid a recession and increasing the chances that the Federal Reserve (Fed) will cut interest rates more modestly in the coming months.
The country’s gross domestic product (GDP), the value of all goods and services produced in the U.S., expanded at a seasonally adjusted annual rate of 2.8% from July to September, the Commerce Department said on Wednesday (30). This is slightly below the 3% increase in the second quarter and 2.9% for the entire year of 2023.
The report provides a final snapshot of the economy ahead of the presidential elections on November 5. While economic growth has been healthy under President Joe Biden and Vice President Kamala Harris, the Democratic nominee, Americans remain frustrated with the high inflation of recent years. 46% of them said Trump had a better approach to the economy, compared to 38% who favored Harris, according to a Reuters/Ipsos poll this month.
Overall, is the U.S. economy doing well right now?
Despite high inflation and exorbitant interest rates in recent years, the economy has proven remarkably resilient, with robust wage gains supporting consumer spending and job growth.
Are consumers still spending money?
In the third quarter, consumption increased at an annual rate of 3.7%, up from the 2.8% pace in the second quarter. Consumer spending accounts for about 70% of economic activity.
An increase in immigration has provided a steady flow of workers to the labor market, sustaining spending and alleviating labor shortages as baby boomers retire in large numbers.
But to cope with higher prices, Americans, especially low- to middle-income families, have accumulated record credit card debt and pushed delinquency to a 13-year high. Low-income consumers have exhausted the cash they saved during the COVID-19 pandemic with stimulus checks and staying home.
However, some economists say that the slowdown in household spending and the late effects of high interest rates are likely to hurt growth next year.
How much should the interest rate cut be?
The Fed, which cut rates in September for the first time since 2020 — amid concerns about slowing inflation and job growth, is expected to reduce rates again next week and in the coming months. Additional rate cuts should support more lending activity and economic growth, but Fed officials are projecting smaller reductions of a quarter point due to concerns about a resurgence of inflation.
Source: USA Today