The United States economy roared back to life in the third quarter, growing at an explosive annual rate of 4.3%. That would be its best growth in two years! This growth jump, announced by the Commerce Department on Friday, beat expectations and came on the heels of a 3.8% growth rate in the third quarter. The strong performance therefore belies a period of great upheaval in trade and immigration policy, alongside a major re-direction of consumer spending.
Consumer spending is accelerating and just boomed at a 3.5% annual rate in the third quarter. This constitutes an acceleration from last quarter’s 2.5% growth. This spending increase was primarily driven by a rise in spending on healthcare services, revealing a strong consumer demand signal. The job market seemed to be softening in that same time frame, which may be reflected in future spending behavior.
Yet equally as important were trade dynamics, which played a key role in creating our recent economic reality. Exports had jumped by 7.4% in the third quarter after pummeling a -8.7% drop in Q2. On the flip side, imports fell, due in part to new tariffs on foreign shipments arriving into the United States. It was President Donald Trump’s announcement of these taxes earlier this spring that started the change in trade balance.
While these were all encouraging signs, cuts to government spending became a significant challenge to the economy as a whole gripped national growth. The government shutdown earlier this spring postponed data collection and could have affected a number of economic indicators. Despite this, the third quarter performance was seen by analysts to be a reflection of resilience amidst these barriers.
The long and shallow current expansion shows the cumulative impact of past policy choices on how well an economy can perform over time. Rising consumer spending and a sharp rebound in exports have provided the economy with a crucial shot in the arm. This major positive momentum has overshadowed worries over government spending and employment trends.