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Grocery not a driver in Q3 U.S. economic growth spurt
Real GDP surged by almost 5% in the third quarter, though food and beverage purchases ticked down.
4 Min Read
Personal consumption expenditures also jumped in the third quarter, climbing at an annual rate of 4%. / Photo: Shutterstock
Food and beverage purchases were down year over year but edged up sequentially as U.S. economic growth jumped in the third quarter, the fifth straight quarter of rising gross domestic product (GDP).
Real GDP rose at an annual rate of 4.9% (seasonally adjusted) to $22.49 trillion in Q3 2023, the U.S. Bureau of Economic Analysis (BEA) reported in advance estimates on Thursday. The latest consensus growth forecasts by economists and Wall Street analysts had ranged from 4.3% to 4.7%, with projections at 3% or less at the start of the quarter.
The Q3 gain followed annual increases of 2.1% in the second quarter of 2023 (revised downward from 2.4% previously), 2.2% in the first quarter of 2023, 2.6% in the fourth quarter of 2022 and 2.7% in the third quarter of 2022.
Excluding declines of 0.6% in Q1 and 2% in Q2 of 2022, the nation has recorded 11 consecutive quarters of GDP growth since economic output plummeted during the height of the COVID-19 pandemic in mid-2020.
On a sequential basis, real GDP grew 1.2% from the 2023 second quarter to third quarter. Q3-to-Q3 growth came in at 2.6%, according to BEA data.
From U.S. Bureau of Economic Analysis
Personal consumption expenditures (PCE) also surged in the 2023 third quarter, climbing at an annual rate of 4% and rising 2.4% year over year to $15.49 trillion, or about 68.9% of overall real GDP. From the second to the third quarter, consumer spending grew 1% after inching up 0.2% from Q1 to Q2.
The PCE uptick largely reflected the latest U.S. retail sales reported by the U.S. Census Bureau. Retail and foodservice sales rose 3.8% annually and 0.7% month to month in September, with core retail trade sales up 3% on a 12-month basis and 0.7% sequentially.
Real GDP for food and beverages purchased for off-premises consumption—basically, food-at-home goods—dipped 0.3% to $1.15 trillion in the 2023 third quarter from $1.16 trillion a year earlier. However, food and beverage purchases ticked up 0.5% from Q2 to Q3 of 2023, slightly outpacing the 0.2% gain from Q1 to Q2, based on BEA data.
That represented the fourth straight quarter of flattish food-at-home spending reported by the BEA. The Census Bureau said September grocery retail sales were up 1.6% year over year and 0.4% month to month.
The PCE price index—another measure of inflation—rose 2.9% for Q3, compared with a 2.5% increase in Q2. Excluding food and energy prices, the index was up 2.4% versus a 3.7% gain in Q2.
The latest Consumer Price Index (CPI), from the U.S. Bureau of Labor Statistics (BLS), had overall inflation up 3.7% (unadjusted) year over year for September and rising 0.4% month to month. In grocery, the September food-at-home CPI was up 2.4% annually and 0.1% monthly.
Recession may be in store
Despite the surprising third-quarter real GDP growth, business think tank The Conference Board believes a recession is likely upcoming in 2024.
“Consumption growth drove the expansion (despite a contraction in real disposable income) but was supported by government spending and an expansion in private inventories. These data put a November Fed [rate] hike back on the table,” Erik Lundh, principal economist at The Conference Board, commented Thursday in a brief on the advance Q3 GDP estimates. “While the prospects for a soft-landing for the U.S. economy have improved, our base case forecast still calls for two quarters of contraction in early 2024.”
Consumer spending heightened for both goods and services in the third quarter, though real disposable personal income shrank by 1% for the period, Lundh noted.
“This mismatch between spending and income is troubling,” he explained. “As pandemic excess savings are depleted, debt levels continue to rise, and mandatory student loan repayments roll out, we expect consumption growth to weaken and eventually dip into contractionary territory.”
Source: Numerator Consumer Sentiment Survey, October 2023
Still, several bright spots—such as consumer spending, residential investment and private inventories in Q3—have kept the national economy on solid ground amid a volatile economic climate, Lundh added.
“The U.S. economy has been remarkably resilient to the duel stresses of high inflation and high interest rates,” he stated. “As inflation continues to cool, it is possible that a soft landing may be achievable, but we continue to believe that a short and shallow recession is the more probable outcome.”
Elevated prices for fuel and many goods and services, including food and groceries, plus an unstable domestic and international economic environment have tarnished the outlook for many consumers.
The latest Consumer Sentiment Study from consumer data specialist Numerator revealed that 66% of Americans think the United States is already in recession. Also, 60% express a high level of concern about the economy, up slightly from September, and 68% expect the U.S. economy to worsen in the next few months.
Similarly, 75% of consumers believe inflation will rise in the next few months, according to Numerator’s research. The primary concern is escalating prices on essential goods and services, followed by higher prices on fuel. In response to inflation and pricing worries, consumers polled said they plan to cut spending on dining out (44%) and travel (37%), while 26% don’t expect to reduce their spending.
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