An initial reading of third-quarter gross domestic product indicated that the US economy expanded at an inflation-adjusted annualized rate of 4.3%, significantly outpacing the 3.8% recorded in the second quarter, as per data released by the Commerce Department on Tuesday. The growth rate has reached its highest level in two years. The third-quarter GDP reading was primarily driven by an acceleration in consumer spending, which increased to 3.5% from 2.5% in the second quarter, alongside a notable rise in exports, which surged to 8.8% from -1.8% in the previous quarter.
Federal spending has significantly influenced the situation, highlighting the substantial increase in defense expenditures alongside buyouts for federal employees, which are components of broader initiatives aimed at reducing government outlays in the long run. The forthcoming fourth-quarter GDP report, scheduled for release next month, is anticipated to reflect adverse effects stemming from a decline in federal spending due to the 43-day government shutdown. President Donald Trump stated on Tuesday that the report reflected his extensive tariffs, which he significantly raised during the third quarter. Nonetheless, an impending Supreme Court case has the potential to invalidate numerous tariffs that have been implemented, which could lead to substantial refunds for importers.
“The tariffs are responsible for the significant economic figures recently announced in the United States… AND THEY WILL ONLY IMPROVE!” Trump expressed his views. “Additionally, there is a lack of inflation and a strong emphasis on national security.” Let us extend our thoughts and hopes for the U.S. Supreme Court. While Trump has consistently advocated for the Federal Reserve to reduce rates to stimulate economic growth, Tuesday’s report probably provides the central bank with even fewer incentives to lower rates when it meets again next month. The GDP report provides a comprehensive overview of the economy. From that perspective, the economy appears to be on a stable foundation. However, a closer examination uncovers a more sobering perspective. Although affluent Americans remain a significant force behind the expansion of consumer spending, individuals from lower- and middle-income brackets have exhibited a markedly more cautious approach. That phenomenon is referred to by economists as a “K-shaped” economy. “The K-shaped economy is staring us right in the face,” stated James Knightley in a note on Tuesday following the release of the GDP report.
Economic growth is “concentrated among higher-income households and tech-led investment, while broader consumer confidence remains under pressure.” Shortly after the release of the GDP report, the Conference Board indicated a significant decrease in consumer confidence this month, falling by 3.8 points from November. The December reading of 89.1 represents the lowest figure since April, coinciding with the introduction of Trump’s “Liberation Day” tariffs. The report indicated that consumers’ perceptions of their family’s current financial condition have fallen into negative territory for the first time in almost four years. Consumers from various income brackets have shown increased apprehension regarding the labor market, as evidenced by the recent rise in the unemployment rate to a four-year peak. The proportion of respondents indicating that jobs are plentiful has declined to its lowest point in four years. In a notable development, businesses have conveyed a net negative perspective on the economy for the first time since September 2024.