Powerhouse U.S. Economy Likely Accelerated In Third Quarter

The U.S. economy likely gained momentum in the third quarter, as consumer spending boosted the Gross Domestic Product if forecasters are correct.

The Bureau of Economic Analysis is scheduled to release an advance estimate of the country’s economic growth in the third quarter on Wednesday. The report is expected to show that the inflation-adjusted GDP grew at an annual rate of 3.2% in the third quarter, according to a survey of economists by Dow Jones Newswires and The Wall Street Journal.

That would be up from 3% in the previous quarter and well above the average growth rate of 2.4% over the past 20 years, suggesting the economy is expanding at a healthy rate.

What Is Fueling Economic Growth?

The economy has stayed on solid footing this year despite high borrowing costs—the result of the Federal Reserve’s campaign of rate hikes to curb inflation. Employers have continued hiring, which has kept enough money in consumers’ pocketbooks to let them keep spending. Many economists see that cycle sustaining itself so long as the job market stays afloat.

“The still-tight labor market is keeping incomes growing and consumers spending,” Justin Begley, an economist at Moody’s Analytics, wrote in a commentary. “Without an increase in joblessness, this dynamic can be relied on to keep the expansion going.”

Increases in consumer spending and business investment likely pushed the GDP up, more than overcoming a headwind from the weak housing market, economists at Goldman Sachs said in an analysis based on the economic data that influences the GDP figures. Imports, which reduce the GDP, also rose, likely dragging it down some.

What Does Could This GDP Report Mean For The Federal Reserve?

The U.S. economy has continued to grow since the end of the pandemic, defying the expectations of economists who once expected a recession to take hold.

The Fed’s high interest rates were meant to deter borrowing and spending and slow the economy to curb the surge of high inflation that took hold after pandemic restrictions ended. Instead, the economy has stayed resilient.

However, while employers have continued hiring, they’ve scaled back the pace since 2022 and also cut down on job openings. Fed officials have voiced concerns about the health of the job market and, in September, began cutting the central bank’s benchmark interest rate, hoping to spur the economy and prevent a serious rise in unemployment.

A downturn in economic growth could fuel fears about the job market, prompting Fed officials to cut rates faster, whereas slower rate cuts would likely be in order if the economy continues to chug along at a healthy clip.