{"id":2669,"date":"2024-10-30T04:00:49","date_gmt":"2024-10-30T04:00:49","guid":{"rendered":"https:\/\/www.rbc.com\/en\/economics\/2024\/10\/30\/u-s-gdp-update\/"},"modified":"2024-10-30T04:00:49","modified_gmt":"2024-10-30T04:00:49","slug":"u-s-gdp-update","status":"publish","type":"post","link":"https:\/\/www.rbc.com\/en\/economics\/us-analysis\/us-data-flashes\/u-s-gdp-update\/","title":{"rendered":"U.S. GDP Update"},"content":{"rendered":"
U.S. GDP remained resilient in Q3<\/h2>\n
By Abbey Xu<\/em><\/p>\n
The Bottom Line: <\/h3>\n
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U.S. GDP growth remains strong despite high interest rates, with an annualized quarter-over-quarter rate of 2.8% in Q3, mainly driven by a resilient consumer and a jump in government spending. <\/li>\n
Labor markets have shown more signs of (gradual) easing than the GDP numbers \u2013 the unemployment rate has edged lower since July but remains higher than levels seen earlier this year and job openings continue to decline. But the softening is consistent with a normalization rather than faltering in the economy. <\/li>\n
Meanwhile, PCE inflation continued to trend lower, reflecting reduced price pressures in line with the broader slowdown in inflation observed in recent months.<\/li>\n
With inflation moderating and labor market conditions normalizing, the resilience of U.S. GDP should not deter the Fed from proceeding with a rate cut at its November meeting.<\/li>\n<\/ul>\n
Impact to Our Forecasts: <\/h3>\n
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We continue to expect that a much larger-than-usual (for this point in the economic cycle) government budget deficit will keep a floor under the economy, inflation, and ultimately interest rates in the year ahead.<\/li>\n
Near-term interest rate cuts from current high levels are still justified, but we expect just three additional 25 bps reductions over the next three Fed meetings before pausing at 4% – 4.25% for the remainder of 2025.<\/li>\n
We expect U.S. GDP growth to decelerate in the coming quarters as households exhaust their savings and manufacturing activity continues to struggle.<\/li>\n
The labor market is likely to cool further, with the unemployment rate projected to increase to around 4.2% by the end of this year and 4.4% next year, consistent with reduced job openings and lower quit rates.<\/li>\n
A softer labor market is expected to lead to slower wage growth, easing upward pressure on prices. This aligns with our base case, where headline inflation continues to trend down toward the Fed\u2019s 2% target over the next year.<\/li>\n<\/ul>\n
The Details (Q3 GDP Recap):<\/h3>\n
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U.S. GDP expanded at an annualized rate of 2.8% in Q3 2024, little changed from the 3% growth rate recorded in the previous quarter. This Q3 report was slightly below our and the market\u2019s expectation of 3%.<\/li>\n
Personal consumption continued to rise, growing at 3.7% in Q3 after an already solid performance in Q2. Goods spending was up by 6%, following the 3% growth in Q3, while services consumption edged lower to 2.6%.<\/li>\n
Government spending expanded in 5% in Q3, up from the 3% in Q2, led by a surge in national defense spending (+14.9%).<\/li>\n
Residential investment fell by 5.2% in Q3, declining at a faster rate than in the last quarter.<\/li>\n
Business investment in structures dropped by -4.1% in Q3, marking the first decline since early 2022. This contrasts with equipment investment, which spiked by 11.1%, mainly driven by the surging software investment.<\/li>\n
In Q3, import growth jumped 11.2%, and export growth increases by 8.9%. This resulted in a slightly widened deficit.<\/li>\n
Price pressures showed further signs of easing. The core PCE deflator, the Fed\u2019s preferred inflation gauge, rose by an annualized 2.2% in Q2, down from 2.8% in the previous quarter, indicating further moderation in inflationary momentum.<\/li>\n<\/ul>\n