U.S. economy shows strong growth in third quarter, Commerce Department says

The U.S. economy grew at a surprisingly strong 4.3% annual rate in the third quarter, the most rapid expansion in two years, as government and consumer spending, as well as exports, all increased. U.S. gross domestic product from July through September — the economy’s total output of goods and services — rose from its 3.8% growth rate in the April-June quarter, the Commerce Department said Tuesday in a report delayed by the government shutdown . Analysts surveyed by the data firm FactSet forecast growth of 3% in the period. However, inflation remains higher than the Federal Reserve would like. The Fed’s favored inflation gauge — called the personal consumption expenditures index, or PCE — climbed to a 2.8% annual pace last quarter, up from 2.1% in the second quarter. Excluding volatile food and energy prices, so-called core PCE inflation was 2.9%, up from 2.6% in the April-June quarter. Economists say that persistent and potentially worsening inflation could make a January interest rate cut from the Fed less likely, even as central bank official remain concerned about a slowing labor market. “If the economy keeps producing at this level, then there isn’t as much need to worry about a slowing economy,” said Chris Zaccarelli, chief investment officer for Northlight Asset Management, adding that inflation could return as the greatest concern about the economy. In a slow holiday trading week, U.S. markets on Wall Street turned lower following the GDP report, likely due to growing doubts that another Fed rate cut is coming next month. Consumer spending, which accounts for about 70% of U.S. economic activity, rose to a 3.5% annual pace last quarter, up from 2.5% in the April-June period. Consumption and investment by the government grew by 2.2% in the quarter after contracting 0.1% in the second quarter. The third quarter figure was boosted by increased expenditures at the state and local levels and federal government defense spending. Private business investment fell 0.3%, led by declines in investment in housing and in nonresidential buildings such as offices and warehouses. However, that decline was much less than the 13.8% slide in the second quarter. Within the GDP data, a category that measures the economy’s underlying strength grew at a 3% annual rate from July through September, up slightly from 2.9% in the second quarter. This category includes consumer spending and private investment, but excludes volatile items like exports, inventories and government spending. Exports grew at an 8.8% rate, while imports, which subtract from GDP, fell another 4.7%. Tuesday’s report is the first of three estimates the government will make of GDP growth for the third quarter of the year. Outside of the first quarter, when the economy shrank for the first time in three years as companies rushed to import goods ahead of President Donald Trump’s tariff rollout, the U.S. economy has continued to expand at a healthy rate. That’s despite much higher borrowing rates the Fed imposed in 2022 and 2023 in its drive to curb the inflation that surged...

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