US economy is seen growing at 3.5% despite shutdown-driven data distortions.
The longest-ever US government shutdown, stretching over 43 days and leaving nearly 1.4 million federal workers in limbo, has cast a long shadow over America’s macroeconomic data. Economists have been scrutinising delayed datasets with scepticism, warning that recent numbers may have “more holes than Swiss cheese”.
Against this backdrop, the Bureau of Economic Analysis (BEA) is set to release the long-delayed GDP print for the third quarter on Tuesday.
According to a broad consensus among economists, the US economy likely expanded at a robust pace of around 3.5 per cent in Q3. While the headline number remains strong, it would still mark a slowdown from the 3.8 per cent growth recorded in the second quarter.
The GDP data release was originally scheduled for October but was pushed back by nearly two months due to the shutdown, during which BEA staff were furloughed. Despite the delay, the US economy is expected to demonstrate resilience largely powered by its single biggest growth engine: consumer spending.
Consumer expenditure accounts for nearly two-thirds of US economic activity and is anticipated to have accelerated in the third quarter. Spending was largely driven by purchases of electric vehicles, increased air travel, hotel stays, and leisure-related services.
However, the strength of consumption appears uneven. A recent Bank of America report highlights growing stress among lower-income households, which are allocating a larger share of their budgets to essential grocery spending while cutting back on discretionary expenses such as clothing, airlines, and hotels. The report underscores the limited ability of these households to substitute spending amid persistently elevated inflation.
One of the most closely watched aspects of Tuesday’s GDP release will be the impact of imports on overall growth. The ‘Liberation Day’ tariffs imposed under former President Donald Trump had earlier distorted growth dynamics, as a surge in imports dragged GDP lower in the first quarter.
The GDP data also arrives amid a mixed macroeconomic backdrop. Recent CPI inflation and labour market numbers provide important context. November CPI data, released earlier this month, showed inflation rising 2.7 per cent year-on-year, down from 3 per cent in the 12 months through September.
October CPI data was never published due to the shutdown, and economists note that the data collection disruption likely contributed to the apparent moderation in inflation.
Looking ahead, economists expect inflationary pressures to firm up again as businesses continue passing tariff-related costs on to consumers.
On the monetary policy front, the US Federal Reserve cut interest rates by 25 basis points in December, bringing the benchmark rate down to 3.50–3.75 per cent. However, Fed messaging suggests that further rate cuts are unlikely in the near term, as policymakers await greater clarity on inflation trends and labour market conditions.
The labour market has already shown signs of strain. The unemployment rate climbed to 4.6 per cent in November, the highest level since 2021, up from 4.4 per cent in September, a rise largely attributed to the prolonged shutdown.
As markets brace for the delayed GDP print, economists caution that while the headline number may look strong, the underlying data remains clouded by shutdown-related distortions, making interpretation more challenging than usual.
End of Article