US Q3 GDP Preview: Economists Expect Strong Growth Driven By Consumer Spending, Services Expansion

On Wednesday, the U.S. Bureau of Economic Analysis will release its advance estimate for third-quarter GDP growth.

Analysts and economists are predicting a strong performance, with consensus estimates set at 3% growth quarter-over-quarter annualized, reflecting resilient consumer spending and robust activity in the services sector.

The latest projection from the Atlanta Fed's GDPNow model puts growth even higher at 3.3%, underscoring the U.S. economy's resilience amid global headwinds.

Key GDP Metrics and Forecasts

Metric	Previous Q2	Consensus Q3
GDP Growth Rate QoQ (Adv)	3.0%	3.0%
GDP Price Index QoQ (Adv)	2.5%	2.7%
Core PCE Prices QoQ (Adv)	2.8%	2.1%
Real Consumer Spending QoQ (Adv)	2.8%	—
GDP Sales QoQ (Adv)	1.9%	—

Jan Hatzius, U.S. chief economist at Goldman Sachs, expects third quarter GDP to grow at an annualized rate of 3%, slightly below the Atlanta Fed's 3.3% forecast.

Hatzius explains: "Our 3.0% forecast is in line with consensus and a bit below the Atlanta Fed's GDPNow model at +3.3%.”

Goldman Sachs projects that robust consumer spending, expected to grow by 3.5% quarter-over-quarter on an annualized basis, along with a 6.4% increase in business fixed investment and an 8.0% rebound in exports, will more than offset a 4.6% decline in residential investment and a 7.6% rise in imports.

"The Advance GDP report for the third quarter will likely show the economy was expanding solidly before the hurricanes struck," Bill Adams, chief economist at Comerica Bank, wrote.

Services Sector Shines In Q3

The services sector played a pivotal role in driving third-quarter growth, with activity consistently beating expectations, according to the Institute for Supply Management (ISM) Services PMI data.

The ISM Services PMI rose sharply from 51.5 in July to 54.9 in September, hitting its highest level since February 2023 and well above the projected 51.7.

In August, the services PMI also outperformed, reaching 51.5 versus an expected 51.1. Even in July, the index showed an expansion, recording 51.4—above the anticipated 51.

The three-month average of the ISM Services PMI, at 52.6, was the highest recorded since November 2023.

Read also: Services Sector Surges In September, Raising Questions For Fed’s November Rate Cut

Consumer Spending Shows Resilience

Consumer spending remained robust, contributing heavily to economic growth.

Retail sales beat expectations in each month of third quarter, painting a picture of resilient consumer demand. Retail sales increased 0.4% month-over-month in September, far above the 0.1% gain recorded in August and surpassing expectations of a 0.3% rise.

The positive retail sales trend was seen in earlier months as well. In August, retail sales edged up 0.1% despite forecasts of a 0.2% decline.

July retail sales saw the largest jump of the quarter, up 1%, the highest monthly increase since January 2023.

The average monthly increase in retail sales for the quarter, at 0.5%, marked the strongest pace since September 2023.

Read also: September Retail Sales Exceed Estimates, Jobless Claims Fall More Than Expected

Labor Market: Strong Recovery After July Weakness

The labor market also presented a picture of resilience in the third quarter, countering earlier fears of imminent slowdown.

July's job growth of 89,000 fell far short of expectations, marking the slowest monthly gain since December 2020.

However, the labor market bounced back in the following months, with August payrolls climbing by 159,000, closely matching forecasts.

September saw a staggering rebound, with the U.S. economy adding 254,000 jobs—well above the anticipated 140,000 and significantly above historical averages. This robust job growth in August and September helped to alleviate concerns about labor market weakness.

Now Read:

• US Economy Adds 254,000 New Jobs In September, Smashes Expectations: Unemployment Falls, Wages Increase

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