After the robust third quarter, during which the U.S. economy roared back by an annualized rate of 4.3%, that’s a 51-month high and the strongest expansion we’ve enjoyed in two years. This major spike indicates a continuing swing from last quarter’s 3.8% growth rate. Analysts continue to point toward signs that the pace of economic activity is increasing. This transition comes amid a wave of protectionism in trade and immigration policy and austerity in federal spending.
Consumer spending was the big driver in this growth, increasing at an annualized rate of 3.5%. This is a big jump over last quarter, where BOF recorded consumer spending at 2.5%! While there are larger, fundamentals-based worries about inflation, this increase in consumer spending suggests that Americans still have strong demand.
Despite the rosy consumer spending picture, the job market is starting to cool off. This precarious state of affairs, compounded by ongoing irritations over inflation rates, bodes ill for continued economic expansion. After a third consecutive quarter of inflation below 3%, skepticism about rising prices continues to plague many Americans, including in their spending and investment choices.
Exports were a big driver, jumping a whopping 7.4% to help drive the economic growth. At the same time, imports fell sharply, as the effects of newly levied tariffs on incoming shipments to the US began to catch up. President Donald Trump originally announced these tariffs this past spring. They have disrupted trade patterns and reduced just the amount of goods coming into the country.
Against all these odds, the underlying growth of the US economy was better than expected, a positive sign that the outlook for coming quarters is brightening. As the analysts at Brookings recently cautioned, our recent government shutdown postponed both the collection and public release of vital economic data. This delay has likely reduced the rigor in which the comprehensive assessment is being conducted.