US economy beats expectations with strong growth in third quarter

WASHINGTON, DC: The US economy expanded faster than expected in the third quarter, federal data released on Tuesday, December 23, showed. It defied concerns about slowing hiring and strained consumer spending.

The Commerce Department reported that gross domestic product grew at an annualized rate of 4.3% over the three months ending in September, marking a clear acceleration from the 3.8% growth recorded in the previous quarter.

The stronger-than-anticipated reading suggested continued economic momentum despite warnings from some analysts that a cooling labor market and persistent inflation pressures could weigh on growth.

A rise in consumer spending played a central role in lifting overall economic activity during the quarter, according to the government’s initial estimate.

Consumer spending and trade lift GDP

Consumer spending, which accounts for roughly two-thirds of US economic output, remains a key indicator of broader economic health. The Commerce Department said household expenditures increased at a faster pace, helping to offset other areas of softness.

The report also showed that net exports contributed to the GDP increase, as exports rose while imports declined over the period.

The improvement in trade figures reflected, in part, a reduction in imports, which are subtracted from GDP calculations to exclude foreign production from domestic output.

The shift in trade flows followed tariffs implemented earlier this year by President Donald Trump, which were aimed at reshaping import dynamics and strengthening the domestic industry.

Economists have noted that changes in export and import levels can significantly influence headline GDP figures, particularly during periods of volatile global trade conditions.

The stronger growth data appeared to run counter to concerns surrounding the labor market, which has shown signs of cooling in recent months.

Hiring slowed noticeably over the late summer and fall, prompting questions about whether employment trends could eventually spill over into consumer behavior.

Labor market and inflation pressures persist

The unemployment rate edged higher to 4.6% in November, up from 4.4% in September, reaching its highest level since 2021.

While the rate remains low by historical standards, the gradual increase has drawn attention from policymakers and investors.

At the same time, inflation has continued to run nearly a percentage point above the Federal Reserve’s target of 2%, complicating the central bank’s policy outlook.

Those conditions have placed the Federal Reserve in a delicate position, as it seeks to balance its dual mandate of controlling inflation while supporting maximum employment.

To address pressure on both fronts, the Fed relies primarily on adjustments to interest rates. Earlier this month, policymakers voted to cut the benchmark rate by a quarter of a percentage point in an effort to support hiring and economic activity.

The move marked the third rate cut of the year, bringing the benchmark rate to a range between 3.5% and 3.75%.

Although interest rates have fallen significantly from their 2023 peak, borrowing costs remain well above the near-zero levels seen during the early stages of the Covid-19 pandemic.

With consumer spending holding firm and growth exceeding forecasts, the latest GDP report provided evidence of resilience in the US economy, even as policymakers continue to navigate lingering inflation and labor market challenges.