U.S. economic growth is the envy of the world, except at home

WASHINGTON —  The last and most consequential report on the nation’s economic health before next week’s election provided more evidence of America’s resilient growth. Whether it will make a difference to voters is an open question.

The Commerce Department said Wednesday that U.S. gross domestic product, the broadest measure of economic output, expanded at a robust annual rate of 2.8% in the third quarter. A country’s GDP is a tally of the value of all goods and services produced in the nation.

The growth was a slight deceleration from the 3% annualized increase in the second quarter, but U.S. economic activity continued to far outpace almost every other developed nation. “The outlook is for more of the same with growth the envy of the world,” said Chris Rupkey, chief economist at Fwdbonds, a economic and markets research firm in New York.

The latest GDP increase was again powered by durable consumer spending as U.S. households have benefited from a solid job market, declining inflation and a booming stock market.

“It’s impressive, phenomenal,” said Jeffrey Korzenik, chief economist at Fifth Third Bank, referring to the American economy’s exceptional run of strong output and full employment.

The Labor Department is set on Friday to release job creation and unemployment numbers for October, but analysts are discounting the report as the data are expected to be badly distorted by the temporary effects of two hurricanes and a strike by Boeing workers. In September, the American economy added 254,000 jobs and unemployment ticked down to a historically low 4.1%.

With the third-quarter results, U.S. GDP is now projected to increase by nearly 3% for the year, after posting similarly strong results in 2023 and the second half of 2022 . That compares with projected growth this year of about 1% or less for other leading advanced economies, including Germany, Japan, the United Kingdom and Canada.

U.S. GDP reached about $82,000 last year on a per-person basis — almost double the average of rich nations and more than six times that of China, the second-largest economy after the U.S., and Russia, No. 11 in total output, according to World Bank data.

“The U.S. is still the standard among developed markets,” said Stephen Juneau, a senior U.S. economist at Bank of America.

Juneau sees some of the same underlying strengths in the latest report continuing to keep the economy on a steady if somewhat slower growth trajectory in the coming quarters.

The banking sector has been solid, as have corporate profits. Productivity has picked up in recent quarters. And an influx of immigrants, legal and undocumented, has boosted the labor supply, helping employers to keep growing and hold down wage inflation. “That’s been an exceptionalism of the U.S. economy — waves of immigration,” Juneau said.

They’ve also helped boost household spending, which accounts for about two-thirds of U.S. economic output. Consumer spending jumped 3.7% in the third quarter, as people bought more cars and spent money on healthcare services and to travel and dine out. Although lower-income and younger people are straining more to keep up with expenses and make debt payments, households on the whole are managing well.

Most people entered the sharp but brief pandemic recession in 2020 in good financial shape. And since then, their finances and spending have been supported by stable jobs — layoffs have remained unusually low — large government support, including stimulus checks, and appreciating assets. Most homeowners had locked in low mortgage rates before the Federal Reserve began jacking up interest rates in March 2022 to curb inflation.

Although job and wage gains are expected to moderate, the Fed has begun cutting interest rates now that inflation is closing in on its 2% target. That should help businesses and consumers, and give a lift to the housing market. In the third quarter, residential investment continued to be a drag on GDP, but businesses spent more for equipment — especially to boost their information and transportation capabilities. That bodes well for future growth and productivity, which also has picked up in recent quarters.

The U.S. imported more goods in the last quarter than it exported, which is a minus for GDP. But in places such as Southern California, home to the largest warehousing and logistics operations in the nation, that’s translated to more activity in the storage and movement of goods. The Port of Los Angeles, the busiest container complex in the U.S., said it handled a record 954,706 containers in September, although some of the 27% increase reflected advanced purchases and diversions due to labor tensions at Eastern seaports.

“Right now the U.S. consumer is buying everything that isn’t nailed down,” Rupkey said. “The economy now is stronger than it was before the pandemic, and trying to convince people otherwise is just completely foolhardy. The economy by almost every measure is better than it was four years ago.”

Although the U.S. economy may be the envy of the world, it isn’t so much at home. Polls have consistently shown Americans are mired in a sour, griping mood when it comes to the economy, which may prove to be a significant factor in the election.

Many analysts attribute the disconnect to two key elements: One is bad memories of high inflation, especially in 2022, which means that prices for groceries and other goods, though now growing far more modestly, remain on the whole about 20% higher than before the pandemic. The second is that people’s feelings reflect their political leanings: Many Republicans, disregarding their own strong personal finances, have a jaundiced view of the economy under Democratic President Biden.

Korzenik, the Fifth Third Bank economist, suggests a third factor might be at play: He says there’s been a general worsening or shrinking of services for consumers, whether it’s a stay at a hotel where many now don’t do housekeeping unless requested, or a lack of experienced staff to help you at retail stores.

“I’m getting less for my money,” he said, calling it an overall “degradation of service quality.”

The American economy also has weak spots. Manufacturing activity remains soft. Strong growth in stocks and houses has come hand in hand with increased wealth inequality. And heavy federal spending in response to the pandemic added to the deficit and bloated public debts, which will crowd out investments and increase the government’s interest costs.

Of more immediate concern, there is a lot of uncertainty over the election outcome, especially because of Donald Trump’s threats to ramp up tariffs and deport millions of undocumented immigrants, which would affect the labor market. For now, though, economists remain bullish about the outlook.

“The U.S. economy is firing on all cylinders at the current time and save a large external shock or domestic policy error, the U.S. economy is poised to close out the year on a strong economic note,” said Joseph Brusuelas, chief economist at the tax and consulting firm RSM US.