The U.S. economy expanded at a slower-than-expected pace in the third quarter, as growth was primarily fueled by increases in consumer and federal government spending.

According to the Bureau of Economic Analysis (BEA), the real gross domestic product (GDP) growth rate was 2.8 percent from July to September, down from 3 percent in the previous quarter.

Economists maintained a consensus estimate of 3 percent.

A day before the latest GDP figures, the Federal Reserve Bank of Atlanta’s GDPNow Model estimate was downgraded to 2.8 percent from 3.3 percent.

Consumer spending, which accounts for two-thirds of economic growth, continues to accelerate after more than three years of cumulative inflation, high interest rates, and soaring debt levels.

Real consumer spending surged by 3.7 percent in the BEA’s advance estimate, up from 2.8 percent in the prior quarter. It contributed to most of the final third-quarter GDP print.

Spending growth was observed in both goods (6 percent) and services (2.6 percent). In the goods category, prescription drugs and motor vehicles and parts led the way. Health care, food services, and accommodations were the leading contributors on the services front.

Government expenditures and gross investment climbed by 5 percent, with federal spending soaring by 9.7 percent. State and local outlays also grew by 2.3 percent. The government added 0.85 percent to the GDP reading.

Imports climbed by more than 11 percent, subtracting from the GDP growth rate. The 8.9 percent increase in exports offset this.

The BEA noted that the deceleration in real GDP was mainly driven by a downturn in private inventory investment and a sizable decrease in residential fixed investment.

The White House welcomed the news, stating that the GDP report shows that the United States is “the strongest economy in the world.”

“Since I took office, the economy has grown 12.6%, we’ve had the lowest average unemployment in 50 years, nearly 16 million jobs have been created, and incomes have risen $4,000 more than inflation,” President Joe Biden said in a statement on Oct. 30.

“While critics thought we’d need a recession to lower inflation, instead we’ve grown around 3% a year on average, while inflation has fallen to the level right before the pandemic.”

Looking ahead to the fourth quarter, the New York Fed Staff Nowcast estimates 2.47 percent growth.

The second GDP estimate will be released on Nov. 27.

Headline Inflation, Personal Finances

Inflationary pressures continued to slow in the past three months.

The personal consumption expenditure (PCE) price index, the Federal Reserve’s preferred inflation measurement, slowed to 1.5 percent from 2.5 percent. Core PCE, which removes the volatile energy and food categories, eased to a higher-than-expected 2.2 percent.

The GDP Price Index—a gauge of price changes for goods and services purchased by consumers, businesses, governments, and foreigners—eased to 1.8 percent from 2.5 percent.

Real (inflation-adjusted) disposable income rose to 1.6 percent, down from 2.4 percent in the second quarter.

The personal saving rate was 4.8 percent, down from 5.2 percent in the previous three-month span.

Market Reaction

Economists and market observers presented different assessments of the data.

One area generating attention is how much government spending has contributed to growth figures.

Brian Wesbury, chief economist at First Trust Advisors, said on social media platform X that federal government spending, which accounts for a fifth of GDP, “is the number one biggest problem in the United States.”

“The federal government spent 21% of all GDP—the private sector’s hard work—on bureaucracies, wasted green-energy, net-zero investment and redistribution of income in 2024,” Wesbury said. “This is why houses are unaffordable.”

Jeffrey Roach, chief economist at LPL Financial, does not believe that government spending will add to future growth “as much as it did” in the third quarter. Instead, it will be the consumer supporting the continued expansion.

“Private consumption patterns appear sustainable,” Roach told The Epoch Times. “From a separate report from the New York Fed, well-heeled millennials are driving consumer spending. As long as they have the appetite and ability to spend, business activity will remain stable.”

Economist Paul Krugman marveled at the GDP numbers.

“This puts a capstone on an incredibly successful response to the pandemic—even if many people won’t believe it,” Krugman said on X.

In the fallout of the economic numbers, Wall Street was little changed before the opening bell, with the leading benchmark indexes flat.

Treasury yields were mixed. The benchmark 10-year Treasury yield dipped below 4.26 percent. The two-year yield rose to 4.14 percent, while the 30-year bond fell below 4.49 percent.

The U.S. Dollar Index, a measurement of the buck against a basket of currencies, rose to above 104.4, adding to its October gains.

The latest economic data come as the Fed is expected to cut interest rates at next week’s Federal Open Market Committee policy meeting, even as the economy remains resilient and inflation remains above the central bank’s 2 percent target.

“Growth up, inflation down is precisely what you want to see,” Jamie Cox, managing partner at Harris Financial Group, told The Epoch Times. “The Fed doesn’t need to be afraid of a stable and growing economy to normalize rates [in] this cycle so long as disinflation persists.”

As part of the agency’s annual benchmark revisions in September, economic growth was revised higher for 2023 to 2.9 percent from 2.5 percent. Growth for 2022 was also adjusted to 2.5 percent from 1.9 percent.

Upward revisions to business investments and consumer spending reflected both changes.

According to the CME FedWatch Tool, the Fed is projected to follow through on a quarter-point rate cut.

The Fed will hold its next two-day policy meeting on Nov. 6 and Nov. 7.