The U.S. economy expanded at a solid 2.8% annual rate in the third quarter of 2024, reflecting sustained consumer spending and a significant boost from exports. The Commerce Department's second estimate, released Wednesday, confirmed earlier projections, underscoring the economy's resilience amid persistent inflation concerns.
Gross domestic product (GDP) growth slowed slightly from the 3% rate recorded in the second quarter, but it remains above the Federal Reserve's estimated non-inflationary growth rate of 1.8%. Consumer spending, which accounts for over two-thirds of economic activity, grew at a brisk 3.5% annual pace, revised slightly downward from the initial 3.7% estimate.
The Commerce Department also highlighted a 7.5% surge in exports, the fastest in two years, as another key driver of growth. Despite these gains, business investment showed mixed results, with a sharp decline in spending on housing and nonresidential buildings offset by a strong increase in equipment investment.
The Federal Reserve's preferred inflation metric, the personal consumption expenditures (PCE) index, rose at an annualized rate of 1.5% in the third quarter, down significantly from 2.5% in the previous quarter. Excluding food and energy, core PCE inflation eased to 2.1%, close to the central bank's target.
President-elect Donald Trump, set to take office in January, inherits an economy with low unemployment at 4.1% and moderating inflation after hitting a 40-year high of 9.1% in mid-2022. However, public frustration over elevated prices persists, with consumer goods costing 20% more than before inflationary pressures began in early 2021.
Trump has signaled his intent to overhaul economic policies, including plans to impose new tariffs on imports from China, Mexico, and Canada. Economists warn that such measures could drive up costs for American consumers. "Mainstream economists view such taxes - or tariffs - as inflationary," the Commerce Department noted in its report.
The Federal Reserve has responded to easing inflation by cutting interest rates twice this year, most recently in November. Many market observers expect another rate cut in December, though uncertainties surrounding Trump's economic policies may temper expectations.
Corporate profits remained flat in the third quarter, with domestic financial firms seeing a $2.6 billion decline, while profits from non-financial institutions rose by $30.8 billion. However, profits from foreign operations fell by $38.3 billion, reflecting global economic headwinds.
The Commerce Department's report also revealed that gross domestic income (GDI), an alternative measure of economic performance, grew at a more subdued 2.2% rate in Q3. The average of GDP and GDI-a comprehensive indicator of economic health-rose by 2.5%, matching the revised figure from the second quarter.
While the third-quarter data paints a picture of relative economic stability, uncertainties loom. Trump's trade policies, coupled with geopolitical tensions, could introduce new risks to growth. Analysts are also closely watching for the Commerce Department's final revision of Q3 GDP, scheduled for release on December 19.
