The U.S. economy expanded at a steady pace in the third quarter, primarily due to widespread growth in consumer spending and a continued cooling of inflation.

The second estimate released by the U.S. Bureau of Economic Analysis on Wednesday showed that U.S. GDP grew by 2.8% in the third quarter. The main growth engine of the economy, consumer spending, increased by 3.5%, the highest for the year.

Although still strong, household spending was slightly adjusted down from preliminary data, reflecting slightly weak goods spending. Meanwhile, corporate investment in R&D was revised up.

The GDP report showed that the resilience of economic expansion has withstood the pressures of persistent price increases, high borrowing costs, and political uncertainty. While inflationary progress has recently plateaued, the Federal Reserve has begun to cut interest rates.

As Trump returns to the White House, American businesses and consumers are now waiting for the rollout of his economic agenda next year.

Another key measure of economic activity, Gross Domestic Income (GDI), grew by 2.2%, following a revision of second-quarter growth to 2%. GDP measures spending on goods and services, while GDI measures the income generated and the costs incurred in producing those goods and services. The average of these two growth measures for the third quarter was 2.5%.

Trump's victory has added momentum to recent stock price increases, partly because many traders believe his economic agenda will continue to drive corporate profit growth. The president-elect has vowed to significantly cut corporate taxes and impose punitive tariffs on foreign goods, in addition to placing Wall Street executives in charge of the Treasury and Commerce Departments.

On the other hand, some economists are concerned that Trump's fiscal plan will put upward pressure on inflation.

Inflation is easing

The report also showed that the Fed's preferred measure, the PCE price index, rose by 1.5% year-on-year in the third quarter. Excluding food and energy, the core PCE measure increased by 2.1% year-on-year.

Economists are watching the PCE data to be released later today. Currently, the market expects the core PCE price index to rise by 2.8% year-on-year in October.

Some Federal Reserve officials have stated that as long as the labor market remains strong and the economy continues to grow, they are not in a hurry to cut interest rates. Although job growth has slowed, other indicators suggest the economy is resilient, and the likelihood of a recession is decreasing.

Data from the U.S. Department of Labor shows that initial claims for unemployment benefits fell to 213,000 last week, below the expected 216,000, with the previous value revised up to 215,000. This indicates that despite a cooling job market, the U.S. economy has avoided mass layoffs. Continuing claims for unemployment benefits reached their highest level in three years.

Labor market data has shown mixed signals this year, complicating the Federal Reserve's interest rate decisions as it balances employment and inflation targets. Currently, there is about one job vacancy for every unemployed worker in the U.S., down from two workers per vacancy in mid-2022. This year, the unemployment rate has slightly fallen from 3.7% at the end of 2023 to over 4%. On the other hand, the U.S. economy has added more than 100,000 jobs on average each month this year, and the number of unemployment benefit claims has not shown a significant increase in layoffs.

Revised GDP data showed that economic growth in the U.S. in the third quarter was dampened by volatile trade data, with net exports decreasing by 0.57 percentage points and inventories falling by 0.11 percentage points.

Other government data released on Wednesday showed that the U.S. goods trade deficit narrowed to $99.1 billion in October, down from the highest level in over two years. Economists believe companies are stockpiling imported goods in anticipation of new tariffs next year.

Article reposted from: Jinshi Data