The economy grew more than expected in the 3rd quarter, now an annualized $23.4 trillion on an inflation adjusted basis. This was the 3rd and final revision to real Q3 GDP.
Q3 real GDP grew 3.1%, which was better than the last estimate of Q3 growth (+2.8%), and Q2’s +3.0% growth. Still slightly below the historical average of 3.2%.
Real GDP grew +2.7% over the last 4 quarters, which is a slowdown from the +3.0% pace of growth for the 4 quarters ending in Q2 2024, and below the historical average of +3.2%.
Breaking down the main contributors to Q3 GDP are as follows:
- Consumer spending: 80%
- Business investment: 18%
- Residential investment: -6%
Inventories: -7.1%
Net exports: -14%
Government spending: 28%
We also got our final look at corporate profits for Q3, which came in -0.4% below last quarter but still up 6% for the year. Corporate profits are now up a whopping +53% above its pre-COVID peak.
The economy heated up a little bit in Q3, and the latest estimate from the Atlanta Fed for Q4 is +3.2% growth, which would be another increase over Q3. Massive budget deficits have kept the economy more resilient than it otherwise would be if left on its own. Government spending made up 28% of the economic growth in Q3 and about 30% of growth over the last 4 quarters. This part is unsustainable and will likely change with the new administration. The US paid $882 billion in interest on debt in 2024. We’ll have to wait and see the details of new economic policies. Everyone is worried about inflation from tariffs, but don’t be surprised if the net effect from the economic agenda is actually deflationary.