2.8% growth in Q4 by US economy on the back of consumer spending

WASHINGTON, D.C.: The U.S. economy expanded at an annual rate of 2.8 percent from July to September, driven largely by consumer spending, according to the Commerce Department.

This growth, though slightly below the three percent rate in the previous quarter, demonstrates resilience despite high interest rates.

Consumer spending, which makes up about 70 percent of economic activity, accelerated to a 3.7 percent pace, up from 2.8 percent in the April-June period. Export growth also contributed, rising at an 8.9 percent rate. However, business investment slowed, particularly in housing and commercial buildings, though spending on equipment saw a notable increase.

The report offered encouraging news on inflation. The Federal Reserve's preferred inflation gauge, the Personal Consumption Expenditures (PCE) index, rose by 1.5 percent last quarter, down from 2.5 percent and marking the lowest level in over four years. Core PCE inflation, excluding food and energy, dropped to 2.2 percent from 2.8 percent.

Despite the Federal Reserve's rate hikes in 2022 and 2023 aimed at controlling inflation, the economy has continued to grow, with consistent consumer spending and ongoing job creation. Analysts view this as a sign of economic stability even in the face of elevated borrowing costs. Ryan Sweet, chief U.S. economist at Oxford Economics, commented, "The economy is doing well, and inflation is moderating - good news for the Federal Reserve."

Underlying economic strength also showed positive momentum, with a category that tracks consumer spending and private investment (excluding exports, inventories, and government spending) rising at a 3.2 percent annual rate, up from 2.7 percent in the prior quarter.

Consumer confidence has also shown improvement, with the Conference Board's index reporting its largest monthly gain since March 2021. Households, which drive much of the economy, appear less concerned about a recession in the coming year. However, the labor market has cooled slightly, with job openings falling to their lowest level since early 2021.

The Fed, satisfied with recent progress on inflation and cautious about the slowing job market, has already enacted a significant rate cut. It is expected to announce another cut in its upcoming meeting, aiming to ease borrowing costs for consumers and businesses.