Chart of the Week: US GDP shifts up a gear

Last week saw the US Bureau of Statistics publish its preliminary estimate of GDP data for 2023 Q3, which shows that the economy grew at an annualised rate of 4.9%, its fastest pace since 2021, greatly surprising Reuters poll expectations of 4.3%. The main drivers were private consumption, greatly favoured by the lower inflation environment, and a significant build up of inventories. Government expenditure also contributed positively, mainly due to a higher defence spending. This stellar growth rate once again showcases the remarkable resilience of the US economy, particularly consumers, to a highly restrictive policy rate environment. However, while a strong economy is certainly good news it also puts the Fed in a difficult position, as it means that the return of inflation back to target may take longer than expected. In this environment, the Fed will likely need to leave policy rates higher for longer, which together with the lagged impact of monetary policy feeding through to the real economy, increases the likelihood of lower growth over the coming quarters. In our latest Global Outlook, Autumn 2023, we argued that the US is likely to avoid a recession, given the willingness of US households to smooth consumption as their pandemic savings deplete. However, we also flagged the risks of an increasingly vulnerable corporate sector, whose shocks could propagate to the household sector and cause trouble. Even so, the ongoing positive US data continues to stand out against the weakness of other geographical areas such as the Eurozone, indicating that Fathom’s forecast of ’diverge fortunes‘ is clearly materialising.

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The views expressed in this article are the views of the author, not necessarily those of LSEG.

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