The US economy continues to defy expectations, growing at an annualized rate of 3.1% in the third quarter of 2024, according to the Commerce Department.
That’s another upward revision from the initial estimate of 2.8%.
Growth was driven by stronger exports, increased consumer spending, and robust federal government expenditures, even as private inventory investment slowed.
For context, the US economy has outpaced global peers like the EU and Canada over the past two years.
With strong consumer spending, rising productivity, and moderating inflation, the picture looks bright.
But can this momentum last, or are hidden risks threatening the outlook?
Why is growth still so strong?
Consumer spending remains a key driver for this resilient economy.
Accounting for roughly two-thirds of US economic activity, spending grew at an annualized 3.7% in Q3.
This is the fastest pace since early 2023.
Despite higher living costs, consumers have continued to spend, bolstered by a healthy labor market and wage increases.
Federal spending, particularly on defense, jumped 13.9%, adding to the momentum.
Exports also surged, growing by 9.6% in Q3. Meanwhile, business investment in equipment increased by 10.8%, though overall business investment remained modest at 0.8%.
These numbers highlight the resilience of the US economy even under higher interest rates.
In contrast, the EU and Canada have struggled to achieve similar productivity or growth.
US worker productivity rose at least 2% year-over-year for five consecutive quarters through September.
This sustained productivity boost has helped companies operate efficiently, keeping costs in check while maintaining output.
What’s behind US productivity gains?
Unlike other economies, the US has benefited from a unique combination of factors post-pandemic.
Companies, faced with a tight labour market, have leaned heavily on technology and automation to boost output. Self-checkout systems and AI-driven processes are now common in retail and other sectors.
Labour market flexibility has also played a role. During the pandemic, millions of Americans switched jobs or industries, often moving into higher-responsibility roles.
According to a Pew Research analysis, about 35% of workers changed employers in 2022, compared to 30% in typical years pre-pandemic. Many of these moves translated into higher productivity.
Business formation has also surged.
High-propensity business applications, a metric for likely sustainable startups, have risen by a third compared to pre-pandemic levels.
These startups, especially in technology, are often focused on efficiency and innovation, further fuelling the productivity boom.
What risks lie ahead?
While the US economy looks strong, several risks could undermine growth. Let’s not forget that inflation has remained sticky, even if it’s getting closer to 2%.
Recent upticks in prices, such as higher egg costs due to bird flu outbreaks, are reminders of how fragile stability can be.
The Federal Reserve has acknowledged the possibility of future shocks and revised inflation forecasts slightly higher for 2025.
President-elect Donald Trump’s policies could also play a role in shaping the economy.
Proposed tariffs on key trading partners, including China, could raise costs for imported goods, potentially reigniting inflation.
If inflation rises again, the Fed may be forced to pause or reverse its rate cuts, keeping borrowing costs elevated for longer.
Higher interest rates are already impacting the housing and auto markets. Families face higher mortgage and car loan payments, limiting their purchasing power.
Equity markets reacted sharply to the Fed’s hawkish stance, with the S&P 500 dropping nearly 3% on Wednesday, its worst decline since August.
This emphasizes how small scares about the outlook of the US economy can quickly trigger sell-off events in the markets.
Is this growth really sustainable?
The current strength of the US economy stems partly from policies that may not be easily replicable.
Biden-era investments in manufacturing and semiconductor production boosted growth, but sustaining this momentum may require additional policy support.
Manufacturing employment remains near its highest levels since the 2008 financial crisis, but output is beginning to wobble.
Consumer spending is another wildcard. While wages have risen, the pool of pandemic-era savings is dwindling.
If inflation remains sticky or borrowing costs stay high, households may cut back on spending, which could slow growth.
The global context also matters. European competitiveness lags, and China’s growth has been lackluster.
These dynamics have made the US the “envy of the world,” as some economists put it, but global uncertainty could spill over into domestic markets.
The bottom line
The US economy has been remarkably resilient, supported by productivity gains, consumer strength, and strategic investments.
Yet, the US must not undermine risks from inflation, tight monetary policy, a mixed labour market and geopolitical conflicts.
Even the slightest piece of bad news could shutter the economy’s momentum and shock the markets.
We’ve seen this scenario play out in August, following the triggering of the “Sahm rule” and the implosion of the yen carry trade.
Whether the current growth momentum can be maintained depends on how these factors play out in the coming months.
For now, the US stands as an outlier in a world of economic challenges—but for how long remains an open question.
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