Q3 economic growth exceeds expectations? Even Americans themselves are not optimistic about Q4.

The latest data shows that the US economy is not only not in recession, but is actually accelerating its growth.

Thanks to a surge in consumer spending, the initial estimate of the US real GDP for the third quarter grew by 4.9%, which is more than twice the growth rate in the second quarter and the fastest pace in nearly two years.

However, behind the unexpectedly strong numbers, there are also some warning signals:

Americans have reduced their savings, and their income has declined during the summer when inflation is taken into account. This could mean that the pace of consumer spending will slow down in the coming months. Business investment has also stagnated. At the same time, the possibility of rising long-term interest rates, conflicts in Ukraine and the Middle East, as well as partial government shutdowns in the United States, could all lead to cracks in the economy.

Economists surveyed earlier this month predicted that the US GDP will grow at an annual rate of 0.9% in the fourth quarter. Analysts say that considering the recent performance of the economy, people may not have much confidence in this number, but some form of slowdown seems possible.

Forecasters expect that as high interest rates and global risks put pressure on the economy, the US economy will cool down in the fourth quarter.

High interest rates dampen consumption and investment

Consumer spending in the third quarter grew at an annual rate of 4%, far exceeding the 0.8% growth in the previous quarter. People's spending on travel, concerts, and movies has been supported by a strong labor market and savings accumulated during the pandemic.

As supply chain disruptions are resolved, the availability of goods such as cars has expanded, and the prices of some goods have actually decreased, which may have supported consumer spending.

However, interest rates, including long-term US Treasury bonds, mortgage loans, credit cards, car purchases, and business loans, are all rising, posing a major threat to the US economy.

At the upcoming Federal Reserve policy meeting next week, policymakers are widely expected to keep interest rates unchanged, with some pointing out that the rapid rise in borrowing costs is a reason to proceed with caution. However, analysts point out that if the economy continues to overheat, it may be necessary to raise interest rates to keep the inflation rate above 2%.

Residential investment in the third quarter grew by 3.9%, but the US 30-year mortgage rate, which has exceeded the 8% mark, will undoubtedly reduce people's demand for housing, ultimately dragging down residential investment.

A survey by the National Federation of Independent Business in September showed that the number of small businesses reporting difficulty in obtaining credit has increased slightly. This may indicate a decline in business investment and hiring. Thursday's report showed that commercial investment in projects such as construction and equipment remained basically flat during the summer.

Meanwhile, data shows that Americans' after-tax income, adjusted for inflation, grew significantly in the first half of this year, but declined by 1.0% from July to September. The proportion of their savings to income dropped from 5.2% in the second quarter to 3.8% in the third quarter. Consumer spending accounts for a large portion of the US economic output, and if consumer savings continue to decline, their spending buffer will decrease. A slowdown in consumer spending will drag down overall economic growth.

According to reports, in August of this year, US resident Joel Delgado spent $600 to buy a ticket to watch a match between Nashville SC and Inter Miami CF. When Argentine football legend Lionel Messi scored a goal, he was only 20 yards (about 18 meters) away from Messi.

Delgado said:

"I can tell my children about this goal. It's one of the most exciting things I've ever seen."

Delgado recently also went to Florida and Texas to watch a baseball game of the Astros and a concert called "Tears for Fear".

It is worth noting that Delgado has relaxed his plan to save money for a down payment on a house, as he feels that this goal is out of reach.

Andrew Hunter, Deputy Chief US Economist at Capital Economics, said:

"If fourth-quarter consumer spending growth remains so strong, it will be very surprising, as rising interest rates and other adverse factors still have room to cause greater damage."

In addition, inventory investment is another important reason why third-quarter GDP exceeded expectations. Many economists originally thought that businesses would reduce inventory levels, but in reality, inventories increased, contributing 1.3 percentage points to third-quarter GDP growth.

However, analysis suggests that the contribution of inventories is unlikely to continue.