The U.S. economy's continued strength is casting a significant influence on the upcoming presidential election, where economic performance, inflation, and wage growth are pivotal points of contention. With the Commerce Department set to release its advance estimate of third-quarter gross domestic product (GDP) growth just days before Americans vote on November 5, the report’s findings will serve as a major focal point in the campaigns of both Vice President Kamala Harris, the Democratic candidate, and former President Donald Trump, the Republican contender. The economy remains a top issue for American voters, many of whom face persistent pressures from elevated costs in food, housing, and healthcare despite signs of recovery.
For months, the U.S. economy has defied expectations of a slowdown, maintaining growth even under a tightened monetary policy environment. This year’s growth pace has been supported by strong consumer spending and wage gains, helping the economy withstand 5.25 percentage points of interest rate hikes by the Federal Reserve. These increases, implemented in 2022 and 2023, aimed to control inflation, which is now subsiding but remains a sensitive issue for many Americans. A Reuters survey of economists forecasts a 3.0% annualized growth rate for the U.S. economy in the July-September quarter, comparable to the previous quarter’s performance, although predictions range from 2.0% to 3.5%.
Christopher Rupkey, chief economist at FWDBONDS, anticipates the positive momentum will continue through the election. “It looks like it's going to be a strong finish right before the election for the U.S. economy,” Rupkey said. “There are some cross-currents out there, but the economy is certainly better off than it was four years ago, and it shows no signs of slowing down.” However, recent trade data, showing a substantial goods trade deficit in September, prompted the Atlanta Federal Reserve to revise its third-quarter GDP estimate from 3.3% to 2.8%.
The Inflation Landscape and Interest Rate Cuts
A major shift in the economic landscape is the Federal Reserve’s approach to interest rates. With inflation cooling near the Fed’s 2% target, the central bank recently reduced borrowing costs with a significant half-point rate cut, the first of its kind since 2020. This adjustment brought the Fed’s policy rate to a range of 4.75% to 5.00%. Economists believe the rate cut signals that the Fed may take a cautious approach to further policy changes, especially if economic resilience persists. Conrad DeQuadros, senior economic adviser at Brean Capital, commented, “If the economy shows resilience and we just have maybe some softening in the labor market… then the Fed won't have to cut rates as much as it is projecting.”
Despite the Fed’s tightening measures, the economy’s strength has raised questions about the true restrictiveness of current monetary policy. Some experts attribute this resilience to gains in worker productivity, which have helped businesses absorb rising labor costs without significant layoffs. While the labor market has cooled, layoffs remain near historic lows, and wages continue to grow steadily, giving households additional spending power and sustaining demand across the economy.
Consumer Spending: A Major Growth Driver
Consumer spending, which represents more than two-thirds of U.S. economic activity, remains robust. Many economists estimate a growth rate of around 3.5% for consumer spending in the third quarter, a substantial increase from the 2.8% growth recorded in the previous quarter. As Brian Bethune, an economics professor at Boston College, points out, “As we got into the disinflation cycle, wages have been going up, so you're seeing real wage gains.” Bethune also noted that house prices have stabilized while the stock market has gained, boosting household net worth and allowing many Americans to maintain their spending levels.
However, there is concern that the bulk of consumer spending growth is concentrated among middle- and upper-income households. This segment has more flexibility in managing expenditures, while lower-income households, though benefiting from recent inflation relief, continue to feel the squeeze of elevated food and housing costs. The recent moderation in inflation has brought some relief, particularly for lower-income families, as the personal consumption expenditures (PCE) price index—closely monitored by the Fed—rose only 2.1% in the third quarter, down from the previous quarter’s 2.8%.
Investments and Business Spending Fuel Economic Activity
In addition to consumer spending, business investment has contributed significantly to the economy’s resilience. Companies, particularly in the technology sector, have increased spending on innovations like artificial intelligence and technology infrastructure. This trend is expected to continue as firms seek to enhance productivity and reduce long-term costs. The aviation sector has also seen increased investment, especially in aircraft, supporting growth in the third quarter.
Public sector spending, driven by government initiatives, has provided additional support to the economy. For instance, the Infrastructure Investment and Jobs Act, signed in 2021, continues to stimulate construction, transportation, and energy projects across the country. However, there are mixed signals in other areas of the economy. Residential investment, covering home construction and sales, has likely contracted for a second consecutive quarter due to higher mortgage rates, which have discouraged new homebuyers. Furthermore, trade is expected to be a drag on GDP growth for the third straight quarter, with imports outpacing exports due to a strong dollar and slowing demand abroad.
The Election Impact: Economy as the Central Issue
With polls showing a close race between Harris and Trump, both campaigns have zeroed in on the economy as a critical talking point. The latest Reuters/IPSOS poll shows that voters favor Trump when asked who would handle the economy better, though both candidates have distinct approaches to economic policy. Trump advocates for tax cuts and deregulation as the keys to economic growth, whereas Harris focuses on investments in social programs and sustainable infrastructure to bolster middle-class prosperity.
Economic indicators have historically influenced voter sentiment, with issues like inflation, unemployment, and income growth often swaying undecided voters. Analysts believe the timing of the GDP report could impact voter perceptions in the final days of the campaign. Given the electorate's prioritization of economic well-being, the resilience shown by the U.S. economy despite higher interest rates could favor Harris, as it aligns with the administration’s messaging that its policies have successfully supported growth. However, Trump’s strong polling on economic stewardship suggests many voters remain skeptical, especially those facing ongoing cost-of-living pressures.
Potential Future Scenarios for the U.S. Economy
Looking ahead, economists have varied views on how long the current growth streak will last. A potential economic slowdown could emerge if consumer spending or business investment wanes. Some economists argue that the Fed’s rate cuts may provide temporary relief, but a significant economic adjustment could occur if inflation ticks up or if geopolitical factors, like trade disputes, impact U.S. exports.
Others, however, remain optimistic about a “soft landing” scenario, where inflation is brought under control without severe impacts on economic growth or employment. For this scenario to materialize, wage growth must continue to outpace inflation modestly, and productivity gains need to keep supporting business investment.
The Commerce Department’s GDP report is expected to be a key piece of data as Americans head to the polls, offering a snapshot of an economy that has displayed surprising durability. As the election looms, this resilience has become a central theme in both campaigns, with each candidate seeking to leverage economic performance as a reason for their vision for the country’s future.
(Source:www.reuters.com)
For months, the U.S. economy has defied expectations of a slowdown, maintaining growth even under a tightened monetary policy environment. This year’s growth pace has been supported by strong consumer spending and wage gains, helping the economy withstand 5.25 percentage points of interest rate hikes by the Federal Reserve. These increases, implemented in 2022 and 2023, aimed to control inflation, which is now subsiding but remains a sensitive issue for many Americans. A Reuters survey of economists forecasts a 3.0% annualized growth rate for the U.S. economy in the July-September quarter, comparable to the previous quarter’s performance, although predictions range from 2.0% to 3.5%.
Christopher Rupkey, chief economist at FWDBONDS, anticipates the positive momentum will continue through the election. “It looks like it's going to be a strong finish right before the election for the U.S. economy,” Rupkey said. “There are some cross-currents out there, but the economy is certainly better off than it was four years ago, and it shows no signs of slowing down.” However, recent trade data, showing a substantial goods trade deficit in September, prompted the Atlanta Federal Reserve to revise its third-quarter GDP estimate from 3.3% to 2.8%.
The Inflation Landscape and Interest Rate Cuts
A major shift in the economic landscape is the Federal Reserve’s approach to interest rates. With inflation cooling near the Fed’s 2% target, the central bank recently reduced borrowing costs with a significant half-point rate cut, the first of its kind since 2020. This adjustment brought the Fed’s policy rate to a range of 4.75% to 5.00%. Economists believe the rate cut signals that the Fed may take a cautious approach to further policy changes, especially if economic resilience persists. Conrad DeQuadros, senior economic adviser at Brean Capital, commented, “If the economy shows resilience and we just have maybe some softening in the labor market… then the Fed won't have to cut rates as much as it is projecting.”
Despite the Fed’s tightening measures, the economy’s strength has raised questions about the true restrictiveness of current monetary policy. Some experts attribute this resilience to gains in worker productivity, which have helped businesses absorb rising labor costs without significant layoffs. While the labor market has cooled, layoffs remain near historic lows, and wages continue to grow steadily, giving households additional spending power and sustaining demand across the economy.
Consumer Spending: A Major Growth Driver
Consumer spending, which represents more than two-thirds of U.S. economic activity, remains robust. Many economists estimate a growth rate of around 3.5% for consumer spending in the third quarter, a substantial increase from the 2.8% growth recorded in the previous quarter. As Brian Bethune, an economics professor at Boston College, points out, “As we got into the disinflation cycle, wages have been going up, so you're seeing real wage gains.” Bethune also noted that house prices have stabilized while the stock market has gained, boosting household net worth and allowing many Americans to maintain their spending levels.
However, there is concern that the bulk of consumer spending growth is concentrated among middle- and upper-income households. This segment has more flexibility in managing expenditures, while lower-income households, though benefiting from recent inflation relief, continue to feel the squeeze of elevated food and housing costs. The recent moderation in inflation has brought some relief, particularly for lower-income families, as the personal consumption expenditures (PCE) price index—closely monitored by the Fed—rose only 2.1% in the third quarter, down from the previous quarter’s 2.8%.
Investments and Business Spending Fuel Economic Activity
In addition to consumer spending, business investment has contributed significantly to the economy’s resilience. Companies, particularly in the technology sector, have increased spending on innovations like artificial intelligence and technology infrastructure. This trend is expected to continue as firms seek to enhance productivity and reduce long-term costs. The aviation sector has also seen increased investment, especially in aircraft, supporting growth in the third quarter.
Public sector spending, driven by government initiatives, has provided additional support to the economy. For instance, the Infrastructure Investment and Jobs Act, signed in 2021, continues to stimulate construction, transportation, and energy projects across the country. However, there are mixed signals in other areas of the economy. Residential investment, covering home construction and sales, has likely contracted for a second consecutive quarter due to higher mortgage rates, which have discouraged new homebuyers. Furthermore, trade is expected to be a drag on GDP growth for the third straight quarter, with imports outpacing exports due to a strong dollar and slowing demand abroad.
The Election Impact: Economy as the Central Issue
With polls showing a close race between Harris and Trump, both campaigns have zeroed in on the economy as a critical talking point. The latest Reuters/IPSOS poll shows that voters favor Trump when asked who would handle the economy better, though both candidates have distinct approaches to economic policy. Trump advocates for tax cuts and deregulation as the keys to economic growth, whereas Harris focuses on investments in social programs and sustainable infrastructure to bolster middle-class prosperity.
Economic indicators have historically influenced voter sentiment, with issues like inflation, unemployment, and income growth often swaying undecided voters. Analysts believe the timing of the GDP report could impact voter perceptions in the final days of the campaign. Given the electorate's prioritization of economic well-being, the resilience shown by the U.S. economy despite higher interest rates could favor Harris, as it aligns with the administration’s messaging that its policies have successfully supported growth. However, Trump’s strong polling on economic stewardship suggests many voters remain skeptical, especially those facing ongoing cost-of-living pressures.
Potential Future Scenarios for the U.S. Economy
Looking ahead, economists have varied views on how long the current growth streak will last. A potential economic slowdown could emerge if consumer spending or business investment wanes. Some economists argue that the Fed’s rate cuts may provide temporary relief, but a significant economic adjustment could occur if inflation ticks up or if geopolitical factors, like trade disputes, impact U.S. exports.
Others, however, remain optimistic about a “soft landing” scenario, where inflation is brought under control without severe impacts on economic growth or employment. For this scenario to materialize, wage growth must continue to outpace inflation modestly, and productivity gains need to keep supporting business investment.
The Commerce Department’s GDP report is expected to be a key piece of data as Americans head to the polls, offering a snapshot of an economy that has displayed surprising durability. As the election looms, this resilience has become a central theme in both campaigns, with each candidate seeking to leverage economic performance as a reason for their vision for the country’s future.
(Source:www.reuters.com)
