US GDP Shows Posts 3.8% Growth, But Many Americans Still Unhappy With Economy

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The US economy achieved a rare feat in the third quarter of 2024, growing at a steady 2.8% annualized rate. Although slightly below the anticipated 3.1%, this figure, released by the Bureau of Economic Analysis, indicates a resilient economy and a “soft landing” in growth for the US GDP. While consumer spending and government expenditures kept momentum strong, the Federal Reserve remains poised to ease interest rates in November, aiming to counter persistent inflationary pressures. The outcome underscores the nation’s economic robustness amid global uncertainties, signaling a promising outlook for both businesses and consumers. Despite the positive developments, however, many Americans still think they’re worse off than before.

Key Drivers of US GDP Q3 Growth

Consumer spending and federal government expenditures were the top contributors to US GDP growth in Q3, driving nearly 3.7% of total personal consumption expenditures. This measure, often viewed as a proxy for consumer activity, showed Americans’ willingness to continue spending, particularly on durable goods and services like dining and travel. This sustained consumer confidence, coupled with a 9.7% surge in federal government spending—led by a 14.9% jump in defense outlays—provided a substantial boost to the US GDP.

However, not all indicators were equally positive. Imports rose by 11.2%, outpacing an 8.9% increase in exports, creating a drag on net GDP that partially offset the domestic growth generated by consumers and the federal government. Meanwhile, inventory investments dipped, and housing investments slowed, hinting at soft spots that could challenge US GDP growth in future quarters.

Fed’s Next Move on Interest Rates

Despite achieving this economic milestone, the Federal Reserve is expected to adjust its course in its upcoming November meeting by further reducing interest rates. This adjustment aims to balance growth with inflation control, especially as inflation has steadily decelerated but remains above the Fed’s 2% target. In Q3, the personal consumption expenditures (PCE) price index, the Fed’s preferred inflation gauge, rose just 1.5%, marking a notable slowdown from Q2’s 2.5% increase. Excluding food and energy, core PCE still rose by 2.2%, suggesting that while inflation has cooled, underlying pressures remain. The Fed’s continued efforts to manage inflation and support the US GDP are seen as crucial steps in the economic outlook for the remainder of the year.

This delicate balance is part of the Fed’s mandate to promote price stability and full employment, a goal that policymakers hope to sustain by potentially implementing another quarter-point cut in November. The anticipated adjustment also reflects confidence that inflation has moderated enough to allow for an economic environment conducive to growth, even as the US election cycle adds layers of unpredictability to US GDP trends.

Negative Consumer Sentiment Amid Economic Paradoxes

Surprisingly, consumer sentiment remains lukewarm despite the economy’s strength. Many Americans still perceive economic challenges, including high prices and modest income gains, as ongoing concerns. Analysts have attributed this disparity to lingering inflation effects, even though inflation peaked over a year ago. Additionally, surveys show Americans feel uncertain due to the divisive political climate, with the US presidential race bringing heightened scrutiny to US GDP performance as candidates pledge distinct policy changes.

This disparity between economic performance and consumer confidence could influence spending patterns going forward, especially as the holiday season approaches. With savings rates declining to 4.8% in Q3 from 5.2% in Q2, there’s evidence that consumers are tapping into credit more heavily, a trend that may prove unsustainable in the long term. High-interest rates on credit cards and loans could eventually dampen consumer enthusiasm, suggesting potential headwinds in future US GDP growth.

Election Influence on Economic Trajectory

As the 2024 presidential race unfolds, both candidates are leveraging the US GDP figures to shape campaign narratives. Vice President Kamala Harris has highlighted the economy’s strength and the Biden administration’s role in fostering sustainable growth. Meanwhile, Donald Trump has pointed to inflationary burdens as evidence that current policies aren’t enough, pledging to implement his own economic overhaul if elected.

The race’s outcome could have far-reaching implications for the US economy. From tax policies to trade agreements, the approaches of each candidate differ significantly, adding a layer of uncertainty to the economic outlook. Policymakers and investors alike are watching closely, as economic policy shifts could affect areas from tariffs to corporate tax rates, potentially impacting both business investment and US GDP performance. With resilient Q3 performance and potential rate cuts from the Federal Reserve, the U.S. seems well-positioned to close out the year with stable growth. Despite the positive factors, however, Americans are seemingly looking for something else. 

What’s your take on the present US economy? Are we truly in a “soft landing,” or do challenges lie ahead? Let us know what you think!

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