The U.S. economy grew at a robust 3.1% annualized rate in the third quarter of 2024, according to an upward revision from the Commerce Department’s Bureau of Economic Analysis (BEA) released Thursday. The revision reflects stronger-than-expected consumer spending and export growth, offsetting declines in private inventory investment and increased imports.
The third-quarter expansion outpaced the previously reported 2.8% and the second quarter’s 3.0% growth, positioning the economy well above the Federal Reserve’s non-inflationary growth benchmark of 1.8%.
Consumer Spending Drives Growth
Consumer spending, which accounts for over two-thirds of U.S. economic activity, was revised upward to a 3.7% annualized growth rate, up from the initial 3.5% estimate. This marks a continued surge in domestic consumption, bolstered by strong job creation and easing inflationary pressures.
Final sales to private domestic purchasers—a key measure of underlying demand that excludes government spending, trade, and inventories—rose at a 3.4% pace, an improvement from the earlier estimate of 3.2%.
Mixed Signals from Other Economic Indicators
While consumer spending fueled the upward revision, national after-tax profits fell $15 billion, or 0.4%, reversing an earlier estimate of flat performance. Gross domestic income (GDI), another measure of economic performance, was revised down slightly to 2.1% from 2.2%.
When averaging GDP and GDI—a metric referred to as gross domestic output (GDO) and considered a more comprehensive indicator of economic activity—the economy grew at a 2.6% pace in the third quarter, slightly above the 2.5% pace reported last month.
Fed Balances Resilience with Inflation Concerns
The Federal Reserve delivered its third consecutive rate cut on Wednesday, reducing its benchmark interest rate by 25 basis points to a range of 4.25%-4.50%. However, policymakers signaled a more cautious outlook, projecting only two rate cuts for 2025, down from four in September.
“It’s pretty clear we’ve avoided a recession,” Fed Chair Jerome Powell said in a press conference. “The U.S. economy has just been remarkable. I feel very good about where the economy is … and we want to keep that going.”
Nonetheless, Powell acknowledged persistent inflationary pressures, which remain a concern for the central bank. The Fed’s moves come amid speculation that incoming President-elect Donald Trump’s policies, including tax cuts, tariffs, and immigration restrictions, could further fuel inflation.
Economic Outlook Amid Policy Shifts
Trump’s proposed policies present a mixed bag for the economy. Tax cuts and deregulation could spur short-term growth, but tariffs and mass deportations risk adding inflationary pressures and supply chain disruptions.
With the Fed signaling a slower pace of rate cuts and inflation expected to remain above target, the U.S. economy faces potential headwinds even as it maintains strong momentum.
The BEA’s initial estimate for fourth-quarter GDP, due in January, will provide more clarity on whether the economy can sustain its above-trend growth into 2025.
Key Takeaways
The U.S. economy’s stronger-than-expected performance in the third quarter underscores its resilience amid high interest rates and geopolitical uncertainties. While consumer spending remains the backbone of growth, mixed signals from profits and income metrics highlight challenges ahead.
