In a recent economic update, the U.S. government reported that despite facing higher interest rates, American consumer spending has remained robust, contributing to the economy’s accelerated growth rate of 5.2% annually in the July-September quarter. This figure marks an upward revision from the previously estimated 4.9% growth rate for the same period.
This revised data confirms that the U.S. economy significantly picked up pace, outperforming its 2.1% growth rate recorded from April through June. The latest figures highlight the fastest quarterly growth in the country’s gross domestic product (GDP) – the total value of goods and services produced – in almost two years.
The main driver of this economic surge was consumer spending, which increased at a 3.6% annual rate between July and September. Although this is slightly lower than the initial estimate of 4%, it remains a significant contributor to the economy. Additionally, the growth was bolstered by businesses stockpiling inventories in anticipation of future sales and increased government spending at federal, state, and local levels.
Remarkably, the U.S. economy has shown resilience even as the Federal Reserve has implemented 11 interest rate hikes since March 2022 to combat a four-decade high in inflation rates. These rate increases have led to higher borrowing costs for consumers and businesses but have also played a role in moderating inflation. Consumer prices increased by 3.2% last month compared to a year ago, a significant reduction from the 9.1% year-over-year inflation rate seen in June 2022.
Employment in the U.S. is cooling down from its exceptionally high levels over the past two years but remains strong by historical measures. On average, employers have added 239,000 jobs per month this year, and the unemployment rate has consistently stayed below 4% for 21 consecutive months, the longest stretch since the 1960s.
This combination of slowing inflation and steady job growth is fueling optimism that the Federal Reserve might successfully achieve a ‘soft landing’ for the economy. The goal is to raise interest rates sufficiently to reduce economic overheating and curb inflation, without pushing the economy into a recession.
