United States: Real GDP Growth Remains Strong

The US economy remains strong. Since mid-2022, quarterly growth has only fallen below 2% once, which is remarkable given that the economy has been contending with high interest rates, geopolitical uncertainty, shaky consumer confidence, hurricanes and labour disputes.

Most noteworthy is the strength of real consumer spending, which rose 3.7% year-over-year in the third quarter—its biggest gain since the first quarter of 2023. Goods spending surged 6.0%, which is the fastest pace seen since the second quarter of 2019 excluding the post-pandemic rebound. Real spending on services also held up well, rising 2.6%. These solid growth numbers were achieved despite a slowdown in household disposable income, which only edged up 1.6%, and meant that the savings rate dropped slightly.

The picture is less clear when it comes to business investment. Nonresidential construction (-4.0%) fell for the first time since the end of 2021. Construction in the manufacturing sector continued to rise (+2.2%), but other subsectors saw declines. However, after a 9.8% gain in the second quarter, investment in equipment surged 11.1%. Meanwhile, investment in intellectual property products—which rose just 0.6% after a 0.7% increase in the second quarter—underwhelmed for the second consecutive quarter. From early 2022 to the first quarter of 2024, this component grew at an average annualized rate of 7.2%. For the first time since 2015, research and development investment declined in two consecutive quarters, which isn’t a good sign for future productivity. Still on the investment side, inventory growth was slightly lower than in the second quarter, while residential investment fell 5.1%, partly due to the hurricanes that impacted construction this summer.

Government spending rose 5.0%—more than expected after it advanced 3.1% in the second quarter—primarily due to the jump in federal spending, particularly in the military sector (+14.9%).

Solid numbers for consumer spending and other components of domestic demand led to the strongest growth in real imports since the beginning of 2022. Exports were not to be outdone and posted decent growth, but the impact on net exports and the contribution to real GDP growth was negative (-0.56 percentage points).

While consumer spending and real GDP moved higher, price growth continued to slow. The year-over-year change in the Personal Consumption Expenditures price index fell from 6.0% to 2.8%. Quarter-over-quarter, it dropped to an annualized pace of 1.5%, its lowest level since the second quarter of 2020.

Real GDP growth remains strong, and this summer’s fears of an imminent recession now seem grossly exaggerated. However, economic growth is expected to slow, particularly in the fourth quarter. The Federal Reserve is likely to keep easing its monetary policy but should now move in 25-basis-point increments. Finally, the outcome of the November 5 election External link. remains too close to call and may well shift the economic climate.