Consumer Spending Fuels Unexpected Surge In US Q3 GDP Growth, Economists Taken By Surprise

Experts predict that U.S. economic growth has seen a significant boost in the third quarter, driven by increased consumer spending and a reduction in slowdown fears. The prediction comes ahead of the Commerce Department’s release of its initial estimate of third-quarter gross domestic product (GDP) at 8:30 a.m. EDT Thursday. 

The Wall Street Journal reported that economists surveyed estimate that the GDP grew at an adjusted 4.7% annual rate in the third quarter, more than double the pace of the second quarter.

This robust growth rate was unexpected, as economists in April anticipated a contraction over the summer. However, the economy has remained on solid ground, largely due to an uptick in American spending.

Factors contributing to this spending surge include high-profile events such as concerts and movies, a strong labor market, and substantial savings accumulated during the pandemic.

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Despite this positive trend, potential economic challenges loom. Rising long-term interest rates, conflicts in Ukraine and the Middle East, labor strikes, and the possibility of a U.S. government shutdown could induce economic instability.

Nonetheless, the combination of slowing inflation and a resilient economy has ignited hopes for a ‘soft landing,’ where inflation returns to the Fed’s 2% target without causing a recession.

“The U.S. economy might have already gotten through the stickiest spot of the post-pandemic normalization,” said Bill Adams, chief economist at Comerica Bank.

However, the optimistic outlook is not unanimous. Many forecasters predict a slowdown due to economic hurdles that Americans will face, including higher long-term interest rates and a potential decrease in residential investment due to climbing mortgage rates.

“It would be very surprising if consumption growth remains this strong in the fourth quarter,” said Andrew Hunter, deputy chief U.S. economist at Capital Economics, highlighting the possibility of higher rates and other headwinds impacting the economy.

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