U.S. Economy Grew at 2.8 Percent Pace, Slowing Slightly Ahead of the Elections

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The U.S. economy continued its expansion in the third quarter, growing at a slightly slower annualized rate of 2.8 percent and reinforcing a rosy lens of the economy days before the elections.

The latest gross domestic product report, released Wednesday by the Commerce Department’s Bureau of Economic Analysis, offers a snapshot of an economy that’s been able to withstand policy swings and political uncertainty. Growth moderated from the previous quarter’s 3 percent reading, but remains sturdy.

“The U.S. economy is now in a very good spot and is characterized by full employment, price stability and strong productivity gains,” said Joe Brusuelas, chief economist at RSM. Even with the gradual slowdown, the U.S. economy is still “firing on all cylinders,” he said.

Consumers are fueling much of that momentum with spending that has outlasted even the most optimistic forecasts. Despite inflation, Americans have continued to shell out for a range of goods and services, including cars, dining out and travel.

However, there are pockets of softness. A dip in housing investments, a slowdown in inventory purchases and a rise in imports all dragged down the latest reading. Many economists expect growth to decelerate later this year and into 2025, as state and local governments dial back their spending.

Americans are seeing smaller income gains and are saving less than they were earlier in the year, the data shows. The personal savings rate – which measures how much money Americans are able to set aside – dropped to 4.8 percent from 5.2 percent in the previous quarter.

Still, consumers, businesses and the government have kept spending and investing despite high interest rates and political uncertainty, which has helped bolster the economy beyond what economists had predicted even a few months ago. Gross domestic product, which measures the goods and services in the United States, has increased for 10 straight quarters.

“We did not expect growth to be this strong this year,” said Luke Tilley, chief economist at Wilmington Trust. “It really is a testament to consumer spending and to the fact that U.S. firms have been incredibly productive and innovative in dealing with the challenges of higher interest rates and labor costs.”

The upbeat snapshot of the economy could help boost Vice President Kamala Harris’s standing in the coming days. Both she and former president Donald Trump have campaigned heavily on economic issues in hopes of winning over voters who consistently cite the cost of living as among their top concerns. Harris has focused on lowering costs for middle-class families by making housing, childcare and groceries more affordable. Trump, meanwhile, has doubled down on his plans to lower taxes and institute across-the-board tariffs on imported goods.

On Wednesday, White House officials cheered the latest GDP reading as proof its policies are spurring broad-based growth. And, they said, efforts to bring down inflation are working in ways that are already helping families.

“Our economy is strong … strong business investment and resilient consumers are driving today’s growth,” Lael Brainard, director of the National Economic Council, said in a call with reporters. “We are clear-eyed that there is important work to do to lower key costs that burden working families, but we’re seeing some progress.”

The Trump campaign, meanwhile, took aim at the administration’s track record, pointing out how economic growth came in below economists’ forecasts of 3 percent.

“Third quarter GDP came in ‘weaker than expected’ as economic growth continues to slow in Kamala’s economy,” spokeswoman Karoline Leavitt said. “President Trump will make our economy boom again.”

By many accounts, the economy is bustling: Companies are hiring, wages are rising, and Americans are spending heartily. Quarterly GDP growth during Joe Biden’s presidency has averaged 3.2 percent. That’s compared with 2.5 percent annualized growth in the first three years of Trump’s presidency, before pandemic-related disruptions.

After raising interest rates aggressively in response to covid-related inflation, the Federal Reserve last month began cutting borrowing costs and is expected to do so again next week. Economists say that should help breathe life into the housing market and spur further investments by both households and businesses.

But it’s still unclear how the coming year will play out. Manufacturing has stalled in recent months, layoffs are ticking up and mortgage rates – still hovering around 7 percent – have yet to budge despite a drawdown in interest rates. The outcome of Tuesday’s presidential election could also change the economy’s trajectory. Harris and Trump have very different plans for key economic issues, including taxes, housing affordability and tariffs.

“The numbers are solid and consumption is up,” said Joseph LaVorgna, chief economist at SMBC Nikko Securities and former Trump White House economic adviser. “But what happens next year will depend on what happens next week.”

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(c) Washington Post

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