The U.S. economy exhibited stronger growth than initially estimated in the third quarter, with a significant boost from business investment and government spending, according to the latest report from the Commerce Department. Gross domestic product (GDP) expanded at a 5.2% annualized pace, exceeding both the previous estimate of 4.9% and the 5% forecast by economists polled by Dow Jones.
The upward revision in GDP growth, marking the fastest expansion since the fourth quarter of 2021, was primarily driven by increased nonresidential fixed investment, encompassing structures, equipment, and intellectual property. Although this sector showed a 1.3% rise, it represented a notable slowdown from previous quarters.
Government spending significantly contributed to the economic growth, with a 5.5% rise during the July-through-September period. However, consumer spending, which accounts for over two-thirds of U.S. economic activity, saw a downward adjustment, now increasing by only 3.6% compared to the initial estimate of 4%. Despite this revision, consumer spending remains robust.
Inflation indicators showed mixed signals. The personal consumption expenditures price index, closely monitored by the Federal Reserve, rose by 2.8% during the quarter, slightly lower than initially estimated. In contrast, the chain-weighted price index saw a minor uptick in its increase to 3.6%.
Corporate profits also saw a significant acceleration, growing 4.3% in the third quarter, a substantial jump from the 0.8% gain in the preceding quarter.
Looking forward, economic momentum appears to be moderating as higher borrowing costs begin to impact hiring and spending. Consumer spending, a critical driver of economic activity, seems to have cooled at the onset of the fourth quarter, evidenced by a decline in retail sales in October for the first time in seven months. Concurrently, the labor market is showing signs of easing, with slower job growth and an unemployment rate rising to a nearly two-year high of 3.9%.
This slowdown in demand has sparked optimism that the Federal Reserve might be nearing the end of its rate-hiking cycle, with financial markets even anticipating a potential rate cut in mid-2024. Since March 2022, the Fed has increased its benchmark overnight interest rate by 525 basis points, currently ranging between 5.25% and 5.50%.
The recent GDP data underscores the resilience of the U.S. economy amid global uncertainties and shifting monetary policies, suggesting a complex economic landscape as the country navigates inflationary pressures and a potential moderation in growth rates.