The U.S. economy has achieved a historic milestone with recent signs of strength across various indicators. Despite this, as the presidential election nears, a significant number of voters report ongoing dissatisfaction with the economy.
According to the Commerce Department, gross domestic product (GDP) grew at an annual rate of 2.8% in the third quarter, which is slightly below the 3% expansion seen in the previous quarter but above the 2.6% predicted by economists in a FactSet poll. This GDP rate, which accounts for seasonal changes and inflation adjustments, highlights steady economic growth.
The recent data reveals that the U.S. economy added an impressive 254,000 jobs in September. Alongside, inflation is now close to the Federal Reserve’s target of 2%, and consumer confidence saw its most substantial rise since March 2021, based on figures from The Conference Board. These factors collectively indicate a robust economic landscape. “I think we should declare a soft landing now,” commented James Bullard, the former president of the Federal Reserve Bank of St. Louis, in a recent CNN interview.
This “soft landing” refers to achieving a reduction in inflation without tipping the economy into recession—an accomplishment considered rare. Bullard, along with other economists and officials, acknowledged that the economy appears to have successfully achieved this outcome.
Yet, consumer sentiment remains subdued compared to pre-pandemic levels. Surveys suggest that Americans continue to feel uncertain despite these positive economic indicators. One explanation for this paradox is the higher price levels compared to 2019. While the Federal Reserve’s aggressive measures have reduced the inflation rate significantly since it reached a 40-year peak in 2022, the impact of those high prices lingers in consumers’ minds.
The Brookings Institution recently released a study arguing that Americans’ negative sentiments amid a strong economy are partly due to increased political polarization and media’s tendency to focus on negative stories. Additionally, they noted that a growing correlation between age and lower consumer sentiment could be influencing overall economic perceptions.
In the third quarter, consumer spending remained a crucial driver of economic growth, as indicated in Wednesday’s GDP report. Accounting for nearly 70% of the U.S. economy’s output, consumer spending rose sharply, led by purchases of big-ticket items, even as spending on services showed a slight decrease. Business investment also continued during the July-September period, albeit at a slower rate than in earlier quarters. Government expenditure at both federal and state levels played a role in supporting third-quarter growth.
In September, the Federal Reserve cut interest rates by half a point, marking the first reduction in over four years. This move signaled confidence among Fed officials that inflation was sufficiently under control, allowing a slight focus shift toward the labor market. The Fed has a dual mandate from Congress to ensure price stability and maximize employment through interest rate policies.
President Joe Biden lauded the U.S. economy’s progress, remarking on Wednesday that the GDP figures “show how far we’ve come since I took office — from the worst economic crisis since the Great Depression to the strongest economy in the world.” A White House official echoed this sentiment, noting that the average annual economic growth rate during the Biden-Harris administration is the highest of any administration in the 21st century.
Looking ahead, the International Monetary Fund (IMF) expects U.S. GDP to grow at an annualized rate of 2.5% in the fourth quarter, exceeding their July projections. This growth rate, if achieved, would be the strongest among the G7 advanced economies.
