Real GDP (Q3-2024, second estimate)

U.S. economic growth remains solid in the third quarter

• The second estimate of third quarter real GDP growth was unchanged at 2.8% quarter-over-quarter (annualized) – in line with the consensus forecast.
• Looking under the hood, consumer spending was revised down to 3.5% (from the prior estimate of 3.7%), but this was entirely offset by an upgrade in non-residential fixed investment (3.8% vs. the prior 3.3%) and a smaller drag from inventory accumulation – now estimated to have shaved 0.1 percentage points (pp) from GDP (vs. the prior -0.2 pp). 
• Government spending expanded by a very healthy 5.0%, largely due to a sharp increase in defense spending (+13.9%). State & local spending rose 2.7%, up from Q2's 2.3%. 
• Net exports shaved 0.6 percentage points from Q3 growth (unchanged from the prior estimate), as another sizeable gain in imports (+10.2%) more than offset a healthy uptick in exports (+7.5%). 
• Real Gross Domestic Income (GDI) rose by 2.2% in the third quarter, virtually unchanged from Q2's downwardly revised reading of 2.0% (previously 3.4%). Corporate profits fell 1.1% (annualized) or $10.1 billion after accounting for inventory valuation and capital consumption adjustments. However, corporate profits measured as a share of GDP remains elevated at 13.0% (down from Q2's 13.2%). 
  • The average of real GDP and GDI, a supplemental estimate of domestic production, rose 2.5% in the third quarter or slightly weaker than the pace of growth suggested by the expenditure GDP data.

Key Implications

• Third quarter economic growth remained solid, expanding well above trend, with underlying domestic demand accounting for all of last quarter's gain. Beyond the housing market and some elements of commercial real estate, there are few signs that elevated interest rates are materially weighing on domestic activity.  
• The U.S. economy will likely end the year on a solid footing, thanks to a resilient consumer and softening (albeit still expanding) business investment. As highlighted in our Quarterly Q&A publication, the outlook for next year has become a little more uncertain. The potential for higher tariffs and large-scale deportations pose notable downside risks to the outlook. But that needs to be weighed against the potential for further tax cuts and a lighter touch on regulation, both of which could lift animal spirits and provide some (if not a complete) growth offset. For now, we've lowered our 2025 GDP forecast by four-tenths to 1.7% but will adjust accordingly as more concrete policies are announced following President-elect Trump's inauguration on January 20th.  

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