U.S. Third Quarter GDP Shows Slight Decline, But Consumer Resilience Keeps Soft Landing Expectations Intact | Moomoo Research

Analyst: Charlotte Tan

The U.S. economy experienced a slight slowdown in GDP growth in the third quarter, yet consumer performance remains robust, maintaining expectations for a sofit landing. Here's a detailed analysis:

In the third quarter of 2024, the annualized GDP growth rate was +2.8%. Although this is below the expected +3.0%, the small decline alleviates concerns about an impending recession. The primary drag on growth came from trade, with net exports negatively impacting GDP growth by 0.6 percentage points. This indicates that the core momentum of the U.S. economy continues to stem primarily from consumer spending, which saw an annualized growth rate of +3.7%, significantly exceeding expectations.

As inflation recedes and the interest rate cut cycle begins, signs of recovery are emerging in the U.S. consumer market. The annualized growth rate of personal consumption expenditures in the third quarter of 2024 was +3.7%, reflecting a recovery in consumer confidence. Retail data has outperformed expectations in recent months, and the consumer confidence index has shown a continuous upward trend, signaling optimism among investors regarding future consumption.

Despite rising concerns about a potential recession, business investment sentiment has turned cautious, leading to a slowdown in non-residential investment growth (annualized +0.3%). However, equipment investment remains strong, with an annualized growth rate of ++11.1%. As the clarity surrounding the election results improves and the interest rate cut policy continues, investments in real estate and manufacturing are expected to recover in the fourth quarter.

The slight decline in GDP growth provides a reasonable basis for the Federal Reserve to consider a 25 basis point rate cut in November. In the short term, while inflation data has noticeably declined, the Fed's focus has shifted to the labor market, particularly in light of the recent hurricane impacts. The likelihood of a rate cut to support the labor market remains high.

Risks to monitor include the potential for an unexpected downturn in the U.S. economy and unforeseen changes in geopolitical circumstances.

Although the third quarter economic data for the U.S. appears somewhat soft, consumer resilience continues to support expectations for a soft landing. Looking ahead, if the interest rate cut cycle persists, the U.S. economy is likely to achieve steady recovery in 2025, helping to avert a recession.