US economy boost as shoppers help to keep the growth coming

Strong consumer spending helped the US economy maintain a solid pace of growth in the last quarterly reading before the presidential election.
Gross domestic product (GDP) rose 2.8 per cent year-on-year in the third quarter, a slight slowdown from the 3 per cent recorded in the previous three months.
President Biden seized on the figures to remind voters “how far we’ve come since I took office — from the worst economic crisis since the Great Depression to the strongest economy in the world”.
He said: “While critics thought we’d need a recession to lower inflation, instead we’ve grown around 3 per cent a year on average, while inflation has fallen to the level right before the pandemic.”
The economy is expected to be a top issue for voters in the American election on November 5, with consumers fuming about higher food and housing costs, even as forecasts of a recession have been defied and the US has outperformed its global peers. Surveys of voters have repeatedly given the edge to Donald Trump, over Kamala Harris when asked who would be a better steward of the economy.
Rising wages, low unemployment and easing inflation have helped to give people the confidence to keep shopping. For the period between July and September, consumer spending rose at a 3.7 per cent annualised rate, accelerating from 2.8 per cent in the second quarter.
The data comes after slowing inflation led the Federal Reserve to cut interest rates last month for the first time in four years. The US central bank lowered the cost of borrowing by 0.5 percentage points to a range of 4.75 to 5 per cent. Markets are betting that the Fed will cut the benchmark short-term borrowing rate by another quarter point when policymakers conclude a two-day meeting on interest rates on November 7.
Figures released by the Department of Commerce on Wednesday showed that consumers have been using savings and credit to support purchases. The personal savings rate in the third quarter slowed to 4.8 per cent, down from 5.2 per cent.
America’s personal consumption expenditures price index — which excludes the volatile food and energy components, followed closely by the Fed as an inflation gauge — rose at a 2.2 per cent rate in the third quarter, sharply slowing from the 2.8 per cent pace in the second quarter. On Tuesday the Conference Board, a global think tank, said that its consumer confidence index had increased to a nine-month high in October amid improved perceptions of the labour market.
The proportion of consumers who expect a recession in the next 12 months dropped to its lowest point since the board first asked that question in July 2022.
Business spending on equipment jumped by 11.1 per cent, the biggest rise since the second quarter of 2023. Government spending also increased. However, the pace of inventory accumulation slowed and the trade deficit widened. Inventories and trade both held back GDP growth.
Residential investment, which includes homebuilding and sales, contracted for a second consecutive quarter.
Ryan Sweet, chief US economist at Oxford Economics, the advisory firm, said the GDP figure “sends a clear message that the economy is doing well and inflation is moderating — good news for the Federal Reserve”.