Consumer Spending Sends GDP Soaring 4.9% in The Third Quarter

Americans stepped up their spending as the summer came to a close this year, powering a big surge in economic growth.

The U.S. economy expanded at a seasonally- and inflation-adjusted annual rate of 4.7 percent in the third quarter, more than twice the 2.1 percent pace of the second quarter.

The strength of growth this year has surprised economists and policymakers, many of whom expected the economy would slip into a recession this year as a series of rate hikes by the Federal Reserve gripped the economy. Instead, the economy has continued to grow and even accelerate as the year progressed.

Over the past several months, views of the third quarter have steadily become more bullish. A year ago, an analysis from Bloomberg Economics saw a 100 percent chance of a recession within 12 months. As recently as April, economists were expecting a mild contraction in the third and fourth quarter. In July, many were predicting only marginal growth in the third quarter—despite real-time estimates such as the Federal Reserve Bank of Atlanta’s GDPNOW showing growth would come in closer to five percent.

In the last few weeks, Wall Street analysts have scrambled to bring their forecasts into line with data showing the economy had expanded rapidly in third quarter. The median estimate was for 4.7 percent growth, according to Econoday, slightly lower than the official estimate released Wednesday.

Consumer resilience explains much of the surprising strength of the economy. Instead of pulling back from purchases amid high interest rates and widespread recession worries, consumers continued to spend generously on goods and services.

Consumer spending jumped 4 percent in the quarter, more than quadrupling the 0.8 percent rate of growth in the prior quarter.

Consumers spent more on both goods and services in the July through September period. Within services, Americans increased the amount they spent to stay in hotels and going out to eat. Spending also increased for housing, healthcare, and financial services.

Prescription drugs were a leading factor in spending on goods, perhaps reflecting the surge in use of weight loss drugs. Americans also spent more on recreational goods and vehicles.

Before adjusting for inflation, the economy grew at an 8.5 percent annual rate, or $560.5 billion, in the third quarter to a level of $27.62 trillion. In the second quarter, GDP increased 3.8 percent, or $249.4 billion.

 Gross private domestic investment climbed 8.4 percent and government spending and investment jumped 4.6 percent.