Shoppers Boosted US Economic Growth to Fastest in Years

A family shopping at a mall

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Key Takeaways

  • Consumer spending pushed the U.S. gross domestic product (GDP) up 4.9% in the third quarter.
  • The GDP growth was more than forecasters expected, boosted also by government spending and business investment.
  • This rapid GDP growth makes a mockery of last year's predictions that the Federal Reserve's rate hikes would push the U.S. into a recession by now. It also may encourage the Fed to keep rates higher for longer.

The U.S. economy isn’t cooperating with the Federal Reserve’s plan to slow it down with interest rate hikes, thanks to consumers who just won’t stop spending.

The U.S. gross domestic product (GDP), a measure of the economy’s entire output, grew at an annual rate of 4.9% in the third quarter of 2023 even after adjusting for inflation, according to a preliminary estimate released by the Bureau of Economic Analysis on Thursday. That was an uptick from the 2.1% growth rate in the second quarter, and the fastest pace of growth since the fourth quarter of 2021, when the economy was rebounding from the pandemic’s initial impact. 

The growth was largely due to a 4% surge in consumer spending, also the largest since the last three months of 2021.

“Exceeding expectations and proving its mettle once again, today’s 23Q3 US GDP report underscored the American economy’s remarkable resilience in the face of restrictive monetary policy,” Ali Jaffery, an economist at CIBC, wrote in a commentary. 

The growth beat the 4.7% rate expected by forecasters, according to a survey of economists by Dow Jones Newswires and The Wall Street Journal, and highlighted the astonishing amount of money U.S. consumers have been spending despite being squeezed by numerous financial pressures.

Working against our wallets: The Federal Reserve’s campaign of anti-inflation interest rate hikes, which have ratcheted up borrowing costs for credit cards, auto loans, mortgages, and other consumer loans. Not to mention, people have had to spend more on necessities because of rapid inflation over the last two years.  

However, the job market still favors workers, so wages have been increasing, and there’s still money kicking around that people saved up during the height of the pandemic.

It wasn’t just consumers who spent freely—federal government spending also rose rapidly, driven by a bump in defense spending as the U.S. military aided Ukraine. Business investment also rose, with investment in housing rising for the first time in more than two years.

The rapid GDP growth makes a mockery of predictions last year that the Fed’s rate hikes would push the U.S. into a recession by this time. The Fed has raised its benchmark interest rate to a 22-year high to boost borrowing costs in an effort to discourage borrowing and spending, in hopes supply and demand would rebalance. 

The surging GDP may force the Fed to keep squeezing the economy by keeping interest rates higher for longer, economists said.

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  1. Bureau of Economic Analysis. "Gross Domestic Product, Third-Quarter 2023

    (Advance Estimate)."

  2. Bureau of Economic Analysis. "Table 1.1.1. Percent Change From Preceding Period in Real Gross Domestic Product."