The US economy grew at a 2.8% pace last quarter on the strength of consumer spending

WASHINGTON (AP) – The U.S. economy grew at a healthy 2.8% annual rate from July to September, with consumers helping to drive growth despite still-high interest rates weighing on the economy.

The Commerce Department's report on Wednesday said gross domestic product – the economy's total output of goods and services – slowed slightly from its 3% growth rate in the April-June quarter. But the latest statistics still reflect the surprising resilience of Americans Assess the state of the economy In the final stretch of the presidential race.

Consumer spending, which accounts for about 70% of US economic activity, accelerated to a 3.7% annual pace last quarter, up from 2.8% in the April-June period. Exports also contributed to third-quarter growth, growing by 8.9%.

On the other hand, growth in business investment slowed sharply due to reduced investment in housing and non-residential buildings such as offices and warehouses. But the cost of equipment has increased.

Wednesday's report also contained some encouraging news on inflation. The Federal Reserve's preferred inflation gauge — called the personal consumption expenditures index, or PCE — rose at an annual pace of just 1.5% last quarter, down from 2.5% in the second quarter and the slowest figure in more than four years. Excluding volatile food and energy prices, so-called core PCE inflation was 2.2%, down from 2.8% in the April-June quarter.

The report is the first of three estimates of the government's GDP growth for the third quarter of the year. The US economy continues to face expansion Very high loan rates The Fed imposed hikes in 2022 and 2023 to curb inflation as the US returned with unexpected strength from the brief but devastating COVID-19 recession of 2020. Despite widespread predictions that the economy would be in recession, it has been growing, employers are still hiring and consumers are still spending. And as inflation continues to cool, the Fed has begun to cut interest rates.

Ryan Sweet, chief U.S. economist at Oxford Economics, said the report “sends a clear message that the economy is doing well, and inflation is coming down — good news for the Federal Reserve.”

Among the GDP data, a category that measures the underlying strength of the economy grew at a solid 3.2% annual rate from July to September, up from 2.7% in the April-June quarter. This category includes consumer spending and private investment but excludes volatile items such as exports, inventories and government spending.

“Today's GDP report shows how far we've come since I took office — from the worst economic crisis since the Great Depression to the world's strongest economy,” President Joe Biden said.

Other recent economic reports still point to a healthy economy. In a sign that the nation's households, whose purchases drive much of the economy, will continue to spend, the Conference Board said on Tuesday that its Consumer confidence index It posted its biggest monthly gain since March 2021 The proportion of consumers expecting a recession in the next 12 months fell to its lowest point since the board first raised the question in July 2022.

At the same time, the country's once buoyant job market has lost some momentum. On Tuesday, the government reported that US job openings fell in September This is its lowest level since January 2021. And employers have added an average of 200,000 jobs a month so far this year — a healthy number but down from a record 604,000 in 2021 as the economy recovers from the pandemic recession, 377,000 in 2022 and 251,000 in 2023.

On Friday, the Labor Department will report that the economy is expected to have added 120,000 jobs in October. However, the gains were likely significantly held back by the effects of hurricanes Helen and Milton and a strike at aviation giant Boeing, all of which temporarily knocked thousands of people off the payroll.

Despite continued progress on inflation, average prices still exceed their pre-pandemic levels, which has angered many Americans and challenged the prospects of Vice President Kamala Harris in her race against former President Donald Trump. Most mainstream economists have suggested, however, that Trump's policy proposals, unlike Harris, Inflation will worsen.

At its most recent meeting last month, the Fed was satisfied enough with its progress against inflation — and concerned enough by the sluggish job market — to cut its benchmark rate. A hefty half percentage pointIt's the first and biggest rate cut in more than four years When it meets next week, the Fed is expected to announce another rate cut, this one by a more modest quarter-point.

Central bank policymakers have also indicated they expect to cut their key rate again at their final two meetings this year, in November and December. And they are considering four more rate cuts in 2025 and two in 2026. The cumulative effect of the Fed's rate cuts, over time, will likely be lower lending rates for consumers and businesses.