The US economy grew at an annualised pace of 3.4 per cent in the third quarter, comfortably beating the roughly 3.0 per cent economists had expected and more than recovering the second quarter’s 2.2 per cent rate. The advance estimate from the Bureau of Economic Analysis offered a rare piece of uncomplicated good news in a week when markets were dominated by falling share prices.
US economy growth with a split personality
The headline figure suggests an economy with real momentum, driven by consumer spending and business investment. Yet the same week delivered a painful technology sell-off, reminding everyone that stock markets and the real economy can tell different stories at the same time. Small-cap stocks in the Russell 2000 actually rose on the GDP release, a hint that investors see strength beyond the mega-cap names. Our money and markets coverage follows both sides of that divide.
What it means for interest rates
Stronger growth complicates life for the Federal Reserve. With the federal funds rate already at 3.75 to 4.00 per cent after September’s hike, a resilient economy reduces any urgency to cut, and keeps alive the debate about whether another increase could follow. As the evening market review observed, the GDP print landed in the middle of a market argument about whether policy is tight enough to finish the inflation fight.
The consumer remains the engine
Underneath the headline, the pattern of recent years held: American households kept spending through higher prices and higher borrowing costs, confounding repeated predictions of exhaustion. Employment costs rose 0.8 per cent in the September quarter, with wages up 0.7 per cent, income growth that helps explain the resilience.
Fourth-quarter figures will test whether the momentum survives the autumn’s market turbulence and a nervous consumer mood. For now, though, the world’s largest economy has done something simple and important: it grew faster than almost anyone expected, in a week when pessimism was much easier to find.
