The U.S. economy showed strong resilience in the third quarter of 2024, achieving an annualized GDP growth rate of 2.8%. This growth surpassed analysts’ expectations and comes at a crucial time as Americans prepare to vote in the presidential elections on November 5.

According to the Commerce Department’s Bureau of Economic Analysis, the economy grew faster than the 3% increase predicted by economists surveyed by Reuters. Estimates had varied widely, ranging from 2.0% to 3.5%. This third-quarter growth follows a 3% increase in the second quarter and is notably higher than the Federal Reserve’s estimated non-inflationary growth rate of about 1.8%.

Key Factors Driving Growth:

  • Easing Inflation Pressures: Lower inflation rates have helped boost economic activity.
  • Wage Gains: Increased wages have supported stronger consumer spending.
  • Consumer Confidence: Americans are spending more, contributing to overall economic health.

As the election approaches, the economy remains a top concern for voters. Polls indicate a tight race between Democratic candidate Vice President Kamala Harris and former President Donald Trump. Many voters view economic performance as a critical factor in their decision-making. Despite worries about high food and housing costs, the U.S. economy has consistently outperformed many global counterparts, defying predictions of a recession.

Recent surveys suggest that Trump is perceived by some voters as the more favorable candidate regarding economic leadership, highlighting the economy’s significance in the upcoming election.

Revisions and Economic Strength:

  • Annual Revisions: Recent adjustments have shown the economy may be stronger than previously thought.
  • GDP vs. GDI: The gap between Gross Domestic Product (GDP) and Gross Domestic Income (GDI) has narrowed, alleviating concerns about overestimated economic activity.

Impact of Interest Rates and Inflation:

The economy’s robustness is notable given the backdrop of rising interest rates. The Federal Reserve increased interest rates by a total of 5.25 percentage points during 2022 and 2023 to combat high inflation. However, inflation appears to be cooling:

  • The Personal Consumption Expenditures (PCE) price index, excluding volatile food and energy prices, rose at a rate of 2.2% in the third quarter, down from 2.8% in the second quarter.
  • This downward trend brings inflation closer to the Fed’s target rate of 2%.

In response, the Federal Reserve has begun an easing cycle, including a significant half-percentage-point rate cut last month. This action reduced the Fed’s policy rate to a range of 4.75% to 5.00%, aiming to stimulate further economic growth.

Conclusion:

The U.S. economy’s better-than-expected performance in the third quarter strengthens its position ahead of the presidential elections. With solid growth, easing inflation, and proactive measures by the Federal Reserve, the economy remains a central issue for voters and a critical factor in the nation’s future direction.