After an unprecedented 43-day shutdown, official statistics have gradually become available. These latest figures confirm robust growth in the US economy, despite the Trump administration’s April 2025 tariff shock.
Coming in at an annualised rate of 4.4% – the fastest expansion in two years – third-quarter growth beat expectations once again. Household spending, the driver of the US economy, was up a blistering 3.5%.
However, once again, we are seeing a significant mismatch between the strength of actual spending data and the persistent slump in the various consumer confidence indicators. For several years now, US consumer momentum has been powered by the very top tier of highest-income households, who have added significantly to their wealth. The richest 20% have seen their wealth increase to more than 70% of the nation’s wealth as a whole. Insensitive to inflation, the top earners are the real drivers of consumer spending in the United States. With income just keeping pace with inflation in real terms over the third quarter and the decline in household savings (from 5% to 4.2% in Q2), economic growth is clearly over-reliant on this thin slice of the population.
Although slowing slightly after an excellent first half (an annualised rate of +3.2%), non-residential investment remained strong as companies poured money into artificial intelligence, partially offset, however, by an increase in imports of technology goods. After consumer spending, this rush of investment in AI sectors is the second most powerful engine of US growth. Yet there is concern around an increasing reliance on circular deals between the players in the chain – semiconductor manufacturers, hyperscalers and artificial intelligence application companies – as financial, industrial and technological links proliferate.
Hiring remained anaemic in the US, with employers adding 15,000 jobs per month on average since July. Unemployment came in at a very low 4.4%, with no striking imbalance apparent between labour market supply – constrained by a very tight immigration policy – and demand.
Household savings are low at under 5% of disposable income, which seems to justify why the Federal Reserve is more concerned about the labour market than inflation. What’s more, unit labour costs have fallen over the past two quarters, reflecting good productivity gains and adding to companies’ profits. It’s likely that we are witnessing a structural increase in productivity, similar to the surge in productivity at the end of the 1990s during the massive technology investment boom of the dot-com era. However, the scale and timing of these productivity gains remain highly uncertain.
Annual inflation stayed at +2.7% in December, in a reassuring development for a Federal Reserve that is still grappling with data disruption after the prolonged US government shutdown.
Nonetheless, pressure on Fed Chair Jerome Powell intensified. He recently confirmed a summons by the US Justice Department in connection with his testimony before Congress on building renovations at the Federal Reserve headquarters. The encouraging reaction of senior politicians, including some in the Republican camp, illustrates their desire to protect the independence of the monetary policy committee from political interference. That said, the Trump administration has stepped up its campaign of pressure to bring down rates. Without providing details on a possible timetable, the President recently ordered two semi-governmental agencies, Fannie Mae and Freddie Mac, to purchase $200 billion in securitised mortgage loans in a bid to push mortgage rates down and make housing more affordable. Trump also floated the idea of capping interest on credit cards at 10%, which looks good on paper but, if implemented, would tighten the supply of credit to households.
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