The US economy is on track for a strong performance in the third quarter, with analysts and economists predicting robust GDP growth. The consensus estimate stands at 3% growth quarter-over-quarter annualized, driven by resilient consumer spending and strong activity in the services sector. The latest forecast from the Atlanta Fed’s GDPNow model suggests even higher growth at 3.3%, further highlighting the U.S. economy’s resilience in the face of global headwinds.
Key Indicators Point to a Strong Q3:
The upcoming release of the advance estimate for third-quarter GDP growth by the U.S. Bureau of Economic Analysis on Wednesday is eagerly awaited. The data is expected to showcase a positive picture of the economy’s performance in the months leading up to the recent hurricanes. Key metrics and forecasts suggest a strong showing:
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GDP Growth Rate QoQ (Adv):
Analysts anticipate a 3.0% growth rate, in line with the previous quarter’s performance.*
GDP Price Index QoQ (Adv):
The consensus forecast is for a 2.7% increase in the GDP price index, reflecting inflationary pressures.*
Core PCE Prices QoQ (Adv):
Core PCE prices, a key inflation gauge, are expected to moderate slightly to 2.1% growth.*
Real Consumer Spending QoQ (Adv):
Consumer spending is projected to remain robust, with an expected 2.8% increase.Consumer Spending Remains Strong:
Retail sales data provides further evidence of resilient consumer demand. In each month of the third quarter, retail sales exceeded expectations, demonstrating a healthy spending appetite. September saw a 0.4% month-over-month increase, exceeding the 0.1% gain in August and surpassing forecasts of a 0.3% rise. The positive trend in retail sales continued from earlier months, with August seeing a modest 0.1% increase despite expectations of a 0.2% decline. July saw the largest jump of the quarter, with a 1% increase, the highest monthly growth since January 2023. The average monthly increase in retail sales for the quarter, at 0.5%, marked the strongest pace since September 2023.
Services Sector Leads the Charge:
The services sector played a crucial role in driving third-quarter growth, with activity consistently exceeding expectations. Data from the Institute for Supply Management (ISM) Services PMI revealed a surge in activity. The ISM Services PMI jumped from 51.5 in July to 54.9 in September, reaching its highest level since February 2023 and surpassing the projected 51.7. The sector’s strong performance was also evident in August, with the services PMI reaching 51.5, exceeding the expected 51.1. Even in July, the index indicated expansion, recording 51.4, exceeding the anticipated 51. The three-month average of the ISM Services PMI, at 52.6, marked the highest recorded since November 2023.
Labor Market Shows Resilience:
The labor market also showcased resilience in the third quarter, alleviating earlier concerns about an impending slowdown. While July’s job growth of 89,000 fell short of expectations, marking the slowest monthly gain since December 2020, the labor market bounced back strongly in the following months. August saw payrolls climb by 159,000, closely aligning with forecasts. September witnessed a remarkable rebound, with the US economy adding 254,000 jobs, significantly exceeding the anticipated 140,000 and historical averages. This robust job growth in August and September helped ease concerns about labor market weakness.
Experts Offer Insights:
Jan Hatzius, U.S. chief economist at Goldman Sachs, expects third-quarter GDP to grow at an annualized rate of 3%, slightly below the Atlanta Fed’s 3.3% forecast. Hatzius explains: “Our 3.0% forecast is in line with consensus and a bit below the Atlanta Fed’s GDPNow model at +3.3%.” Goldman Sachs projects that robust consumer spending, expected to grow by 3.5% quarter-over-quarter on an annualized basis, along with a 6.4% increase in business fixed investment and an 8.0% rebound in exports, will more than offset a 4.6% decline in residential investment and a 7.6% rise in imports. Bill Adams, chief economist at Comerica Bank, highlights that the Advance GDP report for the third quarter is likely to show the economy was expanding solidly before the hurricanes struck.
The upcoming GDP report is set to provide valuable insights into the health of the US economy, offering a snapshot of the economy’s performance in the months leading up to the recent hurricanes. The data is expected to confirm a strong performance driven by resilient consumer spending and a robust services sector. The robust job growth in August and September, along with the continued strength in consumer spending, further support this positive outlook.
