US growth rebound: Washington economy expands at 4.3% annual pace in Q3; inflation pressures persist

The US economy grew at a faster-than-expected annual rate of 4.3% in the July–September quarter, driven by stronger consumer spending, exports and government outlays, even as inflation remained above the Federal Reserve’s comfort level, according to official data released on Tuesday, AP reported.Gross domestic product (GDP), which measures the total value of goods and services produced, accelerated from a revised 3.8% growth rate in the April–June quarter, the Commerce Department said in a report delayed by the government shutdown. Economists surveyed by FactSet had expected growth of around 3%, AP reported.Despite the stronger expansion, inflationary pressures picked up. The personal consumption expenditures (PCE) index — the Fed’s preferred inflation gauge — rose at a 2.8% annual pace in the third quarter, compared with 2.1% in the previous quarter. Core PCE inflation, which excludes volatile food and energy prices, increased to 2.9% from 2.6%.Consumer spending, which accounts for nearly 70% of US economic activity, grew at a 3.5% annual rate in the third quarter, up from 2.5% in the April–June period. A separate measure of the economy’s underlying strength — which includes consumer spending and private investment but excludes volatile components such as exports, inventories and government spending — expanded at a 3% pace, slightly higher than the 2.9% recorded in the second quarter.Trade also contributed to growth. Exports surged at an 8.8% annual rate, while imports, which subtract from GDP, declined by 4.7%.Tuesday’s release marks the first of three official estimates for third-quarter GDP growth. Outside of the first quarter — when the economy contracted for the first time in three years as companies rushed to import goods ahead of President Donald Trump’s tariff rollout — the US economy has continued to post solid growth.This resilience has come despite sharply higher borrowing costs imposed by the Federal Reserve in 2022 and 2023 to rein in inflation that surged as the economy rebounded strongly from the COVID-19 recession of 2020.While inflation remains above the Fed’s 2% target, the central bank cut its benchmark lending rate three consecutive times to end 2025, largely due to concerns over a cooling labour market.Recent jobs data have pointed to slowing momentum. The government reported last week that the economy added 64,000 jobs in November, following a loss of 105,000 jobs in October. The unemployment rate climbed to 4.6% last month, its highest level since 2021.Economists describe the labour market as being stuck in a “low hire, low fire” phase, as businesses remain cautious amid uncertainty over Trump’s tariff policies and the lingering impact of elevated interest rates. Since March, job creation has averaged 35,000 a month, down from 71,000 in the year ended March. Federal Reserve Chair Jerome Powell has said he expects those figures to be revised lower.