US Economy Posts GDP Growth Of 2.8% In Q3 Surpassing Expectations Ahead Of Presidential Elections

The US economy demonstrated resilience in the third quarter, achieving an annualized growth rate of 2.8% as inflation pressures eased and wage gains bolstered consumer spending. This economic performance comes at a critical time, with Americans preparing to vote on November 5 in a closely contested presidential election.

According to the Commerce Department's Bureau of Economic Analysis, the 2.8% growth rate exceeded the expectations of economists surveyed by Reuters, who had projected a 3% increase. Estimates for GDP growth varied widely, ranging from a low of 2.0% to a high of 3.5%. The economy's growth in the third quarter follows a slightly slower pace of 3% recorded in the second quarter. Notably, this growth rate surpasses the Federal Reserve's non-inflationary growth rate estimate of approximately 1.8%.

As voters prepare to head to the polls, economic issues weigh heavily on their minds. Polls indicate a tight race between Democratic candidate Vice President Kamala Harris and former President Donald Trump, with many voters viewing the economy as a critical factor in their decision-making. Despite concerns over high food and housing costs, the economy has consistently defied recession forecasts, outperforming many of its global counterparts. In recent surveys, Trump has been perceived as the more favourable candidate regarding economic stewardship, reinforcing the importance of economic performance in the upcoming election.

In addition to the encouraging GDP figures, recent annual revisions suggest that the economy may be stronger than previously estimated. These revisions have significantly narrowed the gap between GDP and gross domestic income (GDI), another measure of economic activity. Prior to the revisions, some economists had raised concerns that the economic activity might be overestimated.

The resilience of the economy is particularly noteworthy given the backdrop of rising interest rates. The US central bank raised interest rates by a cumulative 5.25 percentage points in 2022 and 2023 to combat inflation. However, inflation appears to be cooling, with the personal consumption expenditures price index-excluding volatile food and energy prices-increasing at a rate of 2.2% in the third quarter, down from 2.8% in the second quarter. This trend brings inflation closer to the Fed's target of 2%, prompting the central bank to initiate an easing cycle, including a significant half-percentage-point rate cut last month. This reduction lowered the Fed's policy rate to the range of 4.75% to 5.00%, aiming to stimulate further economic activity.

*Inputs from Reuters*