US Real GDP Growth Slows Slightly in the 3Q24; Indicates Resilience
The U.S. economy grew 2.8% YoY in the 3Q24. The growth proved slightly below the 3.0% consensus forecast (according to Trading Economics) and the 3.0% rate from the 2Q24. The reading from the Bureau of Economic Analysis (BEA) reflects higher consumer spending, exports, and government spending.
Consumer spending, which was a key driver of GDP growth and accounted for approximately 2.5 percentage points of the 2.8% YoY gain, increased due to higher expenditures on both goods (which grew by 6.0% YoY and contributed about 1.3ppts to GDP) and services (which grew by 2.6% YoY and added roughly 1.2ppts). However, slower growth in gross private domestic investment (+0.3% YoY) compared to the 2Q24 (+8.3% YoY) led to a slowdown in growth compared to the previous quarter.
Furthermore, net exports reduced GDP growth by 0.6 percentage points due to a surge in imports of 11.2%, while exports increased by 12.2%. The effect from net exports proved negative as imports have a higher weight than exports. This is because the U.S. typically imports more goods than it exports, resulting in a larger negative impact on GDP when imports increase. Imports are subtracted in GDP calculations, meaning that when they rise significantly compared to exports, they can outweigh the positive contributions from export growth. Lastly, government spending increased 5.0% YoY vs. 3.1% in the 2Q24, boosting 3Q24 GDP by c0.9ppts.
Why You Should Care
Although slightly below the 3.0% YoY expectation, the +2.8% YoY reading indicates continued GDP resilience amid the high interest rate environment. The question in the minds of investors is how much and how fast the Federal Reserve may lower interest rates. This 3Q24 reading, the first of three the BEA will publish, along with the jobs report (see below), indicates that the economy remains strong despite high interest rates, signaling that the Fed doesn't need to worry too much about a slow pace in cuts to the neutral interest rate.
You can access the release here.