The third quarter saw the U.S. economy develop more rapidly than it was anticipated, as estimated by the Commerce Department.
On 22nd January, the Bureau of Economic Analysis (BEA) released its last reading of third quarter GDP that indicated that the economy grew at an annualised rate of 4.4 per cent in the three months involving July, August and September.
This was above the expectations of the economists who were called upon by LSEG and had projected an increase in the GDP of 3.3% in the third quarter. It became the two-year high growth rate as well.
The report also established that the real GDP increased at an annualised rate of 3.8% in the second quarter. That was after a decrease in GDP of 0.6 per cent in the first quarter. These 3 readings in combination suggest that the U.S. economy will expand at the rate of 2.5 per cent (annualised) in the first three quarters of 2025.
According to BEA, the increase in real GDP indicated an increase in consumer spending, exports, government spending and investment. The third quarter was also characterised by a reduction in imports.
“In comparison with the second quarter, acceleration in real GDP in the third quarter was an indication of upturns in investment, exports and government spending and the acceleration of consumer spending,” the BEA said that the third quarter showed declining imports compared to the second quarter.
The report opined that real final sales to domestic private buyers -the amount of consumer expenditure plus gross private fixed investment- increased 2.9 per cent in Q3 after it was revised to show 0.1 percentage point lower than the earlier Q3 estimate.
The government shutdown that started on 1 October affected the data used to write the report because BEA can no longer release its initial estimate of Q3 until 23 December and will never release a second estimate.
According to EY-Parthenon chief economist Gregory Daco, “the robust GDP reading was propelled by robust consumer spending, healthy equipment and AI-related investment, a significant addition to net international trade, and a rebound in federal government outlays.”
“The U.S. economy is not overheating or stalling, but modifying itself to what Daco termed a very intense set of crosscurrents.”
There is a drastic increase in tariffs, a steep fall in net migration, and booming artificial intelligence (AI) investment. An unemployed economy, tax reform and questions as to whether the Federal Reserve will reduce its rates regardless of high inflation and a weak labour market.
According to Daco, the firm has projected that the real GDP will increase by 3.2 per cent in Q4 2025, and that the average GDP will increase by 2.3 per cent in 2025 in general.
