US Economy Sees Strongest Growth in Two Years Amid Consumer Spending

The United States economy demonstrated robust growth in the third quarter of 2023, expanding at an annualised rate of 4.3% from July to September. This marks an increase from the 3.8% growth recorded in the preceding quarter and is the most significant expansion seen in two years.

This growth figure was revealed in a report that faced delays due to a government shutdown. It highlights the resilience of the US economy, which has been navigating through challenges posed by fluctuations in trade and immigration policies, ongoing inflation, and reductions in government expenditure.

Despite these challenges leading to volatility in some sectors, such as imports and exports, the core economic indicators suggest a steady momentum. Aditya Bhave, a senior economist at Bank of America, remarked, "This is an economy that has defied doom and gloom expectations basically since the beginning of 2022." He described the economy as "very very resilient" and expressed confidence in its continued performance.

The reported growth significantly exceeded analyst forecasts, which had anticipated a more modest annual rate of around 3.2%. Consumer spending, a key driver of economic activity, rose at an annual rate of 3.5% during this period, up from 2.5% in the previous quarter. This increase occurred despite signs of a slowing job market, with households reportedly increasing their expenditure on healthcare services.

On the trade front, imports continued to decline, negatively affecting growth figures, largely due to tariffs imposed by former President Donald Trump on imported goods earlier this year. Conversely, exports rebounded impressively, surging by 7.4%. Government expenditure also experienced a revival, particularly in defence spending, contributing to overall economic growth.

However, business investment showed signs of slowing, particularly in areas such as intellectual property and the housing market, which is grappling with high interest rates that have made affordability a pressing issue.

Michael Pearce, chief US economist at Oxford Economics, noted that the economy is well-positioned as it approaches 2026, with anticipated boosts from tax cuts and recent interest rate reductions by the Federal Reserve. He stated, "Underlying measures are consistent with a solid expansion."

Despite the positive growth indicators, some analysts caution that rising costs could impede the sustainability of this growth rate. The personal consumption expenditures price index, a key inflation measure favoured by the Federal Reserve, rose to 2.8% in the third quarter, compared to 2.1% in the previous quarter.

These price increases are reportedly affecting lower and middle-income households more significantly, even as higher-income groups continue to spend without restraint. Oliver Allen, a senior US economist at Pantheon Macroeconomics, pointed out that recent surveys and credit card data indicate households are beginning to curb their spending. He commented, "The weak labour market, stagnant real incomes, and exhaustion of pandemic-era excess savings all seem finally to be catching up with households."

As the US economy navigates these complexities, the balance between growth and inflation will be critical to watch in the coming months.