Tuesday, April 1, 2025

Strong Consumer Spending Fuels U.S. GDP Growth Despite Predictions

U.S. Department of Commerce

On Wednesday, the U.S. Department of Commerce announced that the preliminary GDP growth rate for the third quarter of 2023 was 2.8% (annualized rate compared to the previous quarter). This shows that the U.S. economy has maintained robust growth of about 3%, supported by strong consumer spending.

However, the released growth rate of 3.1% fell short of market expectations and was lower than the 3.0% growth rate recorded in the second quarter.

Nevertheless, a growth rate in the high 2% range significantly exceeds the estimated potential growth rate of the U.S., which is thought to be in the lower 1% range.

Specifically, personal consumption growth surged by 3.7% in the third quarter, driving economic growth. Personal consumption contributed 2.46 percentage points to the overall growth rate, accounting for the majority of the total growth. This highlights the resilience of U.S. consumer spending despite expert predictions of a slowdown due to prolonged high interest rates and deteriorating employment conditions.

Private consumption (final sales to domestic private consumers) rose by 3.2%, reflecting the underlying trend of U.S. economic demand.

The growth rate of the Personal Consumption Expenditures (PCE) price index decreased from 2.5% in the previous quarter to 1.5% this quarter, falling below the Federal Reserve’s inflation target of 2%. Excluding food and energy, the core PCE price index also declined from 2.8% to 2.2% during the same period, approaching the inflation target. The PCE price index is a key inflation indicator the Federal Reserve considers when making monetary policy decisions.

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