U.S. Economy Growth Shows Faster in Q3
The U.S. Economy Growth expanded faster than predicted in the third quarter, thanks to strong consumer spending, but momentum appears to have waned with rising living costs and the current government shutdown.
The US economy growth expanded at 4.3% annualized rate in the latest quarter, according to theCommerce Department’s Bureau of Economic Analysis, which released its first estimate of third-quarter GDP on Tuesday. In the second quarter, GDP increased by 3.8%. Reuters polled economists, who expected that the US Economy Growth will grow by 3.3%.
Consumer Spending Surge and Government Shutdown Impact on GDP
The data was delayed due to the 43-day government shutdown and is now out of date. Consumer expenditure rose by 3.5% last quarter, following a 2.5% gain in the second quarter.
Much of the increase in consumer spending was driven by a rush to purchase electric vehicles before tax credits expired on September 30. Motor car sales fell in October and November, while spending elsewhere remained mixed.
The nonpartisan Congressional Budget Office estimates that the closure could reduce GDP by between 1.0 and 2.0 percentage points in the fourth quarter. It predicted that the majority of the GDP decrease would be recovered, but that the remaining $7 billion to $14 billion would not.
Higher-Income Households Lead Consumer Spending Expansion
According to surveys, higher-income households are driving consumer spending, owing to a stock market boom that has increased household wealth. Middle- and lower-income consumers, on the other hand, are struggling due to the rising cost of living caused by President Donald Trump’s broad tariffs, resulting in what economists refer to as a K-shaped economy.
This phenomenon is equally evident in the corporate world. According to economists, multinational firms have mostly absorbed the cost rise caused by import taxes and are investing in artificial intelligence. However, tariffs are causing problems for small enterprises.
Trump’s actions are adding to what economists call an affordability crisis, which is lowering his support ratings. Households will also see increased utility costs as the rapid rise of AI and cloud computing data centers increases electricity usage. Some will face soaring health insurance premiums by 2026.
The Federal Reserve dropped its benchmark overnight interest rate by 25 basis points this month, to 3.50%-3.75%, but warned that borrowing rates were unlikely to decline in the near term as policymakers waited for clarity on the future of the labor market and inflation.
Conclusion:
Overall, the most recent figures suggest that U.S. Economic growth was resilient in the third quarter, surpassing expectations thanks to solid consumer spending. However, it looks that this impetus is only ephemeral. The boost from one-time factors, such as early purchases of electric vehicles, combined with the disruptive impact of the lengthy government shutdown, signals that growth may slow in the coming quarters.
Rising living costs, tariff-driven inflation, and growing income disparity are putting additional strain on middle- and low-income people, while small enterprises continue to face substantial hurdles. With the Federal Reserve cautioning against more rate cuts and economic uncertainty lingering, the forecast for US Economic Growth points to a slower, more uneven expansion rather than a steady surge.
