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The U.S. economy continued its robust performance in the third quarter of 2024, with gross domestic product (GDP) expanding at an annualized rate of 2.8%. This slightly missed the 3.1% estimate but was still a strong showing, driven by resilient consumer spending.
According to data released by the Commerce Department, GDP grew 2.8% from July through September, down from 3.0% in the second quarter but exceeding the economy's long-term historical average. Consumer spending, which accounts for about two-thirds of U.S. economic activity, accelerated to a 3.7% pace, up from 2.9% previously.
"Where it counts, growth performed incredibly well in the third quarter," said Tom Porcelli, chief U.S. economist at PGIM Fixed Income. "It's very hard to really practically think of having a recession over the near to medium term."
The solid GDP report comes just days before Americans head to the polls to elect a new president, providing evidence of the economy's continued strength under the current administration. It also presents a challenge for the Federal Reserve, which has been aggressively raising interest rates to cool stubbornly high inflation.
Despite the quarter's positive showing, some underlying weaknesses emerged. Residential investment, a gauge of the housing market, declined 5.1%. And the final sales to domestic private purchasers metric - which strips out the volatile trade and inventories components - rose to 3.2%, up from 2.7% in Q2.
"The consumer is still hanging tough, but there are some cracks appearing," said Diane Swonk, chief economist at KPMG. "We're seeing some sectors start to slow, and the Fed's rate hikes are starting to bite."
The central bank cut interest rates by a half-percentage point last month, its first reduction since 2020, leaving the benchmark federal funds rate at 4.75% to 5%. With the economy still growing at a healthy clip, policymakers face a delicate balancing act as they try to rein in inflation without tipping the U.S. into recession.
"The Fed is trying to thread the needle - to slow the economy just enough to bring down inflation without causing a downturn," said Mark Zandi, chief economist at Moody's Analytics. "It's a very difficult task, and the risk of a policy mistake is uncomfortably high."
The third-quarter GDP data suggests the U.S. economy remains on solid footing, buoyed by consumer resilience even as headwinds mount. However, with the Fed still determined to cool inflation, the road ahead could get bumpier in the coming months.
