With the U.S. economy sending a flurry of mixed signals—record-breaking growth alongside slumping consumer confidence—navigating the financial landscape has become more complex than ever. To help decipher these trends, we are joined by Priya Jaiswal, a distinguished authority in finance and market analysis. In our conversation, she will unravel the paradox of the American consumer, explore the sustainability of the recent economic surge, and dissect the critical balancing act facing the Federal Reserve. We’ll also delve into the surprising shifts in business investment, where digital innovation is booming while physical infrastructure wanes, to understand what these undercurrents reveal about the economy’s future.
The latest report highlights a fascinating paradox where consumer spending grew robustly at a 3.5% pace, yet confidence has taken a significant hit. Could you break down this “K-shaped recovery” and explain what this divergence signals for the broader economy?
Absolutely. What we’re witnessing is a tale of two economies within one. On one hand, you have this impressive 3.5% growth in consumer spending, which is the engine for about 70% of our economic activity. But that number masks a deep split. Wealthier households, who are benefiting from a strong stock market and growing investment portfolios, are the ones truly driving that spending, particularly on services. On the other hand, lower and middle-income families are feeling an immense strain. Their wages are not keeping pace with stubbornly high prices, and that fatigue is what you see reflected in the slump in consumer confidence. This K-shaped dynamic is a warning sign; an economy propped up by a narrowing segment of the population isn’t a sustainable model for long-term, healthy growth.
Third-quarter GDP growth was a surprisingly strong 4.3%, yet many economists believe this is a short-lived spurt. Beyond consumer spending, what underlying factors contributed to this strength, and what indicators will you be watching to gauge its sustainability?
The 4.3% figure was certainly eye-catching and well above the 3% forecast, but it’s crucial to look under the hood. A major contributor that doesn’t get enough attention was the remarkable 8.8% growth in exports, which provided a significant boost. At the same time, imports fell by 4.7%, which also positively impacts the GDP calculation. To gauge sustainability, I’m less focused on that headline number and more on the underlying trends. I’ll be watching the labor market very closely. Job creation has already slowed to an average of just 35,000 a month since March, and with unemployment ticking up to 4.6%, any further weakening there would directly threaten the consumer spending that has kept us afloat. We also can’t ignore that the extended government shutdown will almost certainly drag on the fourth quarter, suggesting this powerful surge is unlikely to repeat itself.
With core PCE inflation rising to 2.9%, the data suggests a January rate cut is less likely. How does the Federal Reserve typically balance this persistent inflation against a slowing labor market, where unemployment hit 4.6% and monthly job creation has fallen dramatically?
This is the tightrope the Federal Reserve has been walking for months. They are caught between two competing priorities. On one side, you have core PCE inflation creeping up to 2.9%, which is still well above their 2% target. This persistent inflation argues against cutting rates, as it could refuel price pressures. But on the other side, you have a labor market that is clearly losing momentum. When you see the unemployment rate hit its highest level since 2021 and job creation averages just 35,000 a month—a number Fed Chair Jerome Powell suspects will be revised even lower—it raises serious concerns about a potential downturn. Historically, the Fed has to decide which risk is greater. Right now, the strength of the Q3 GDP report gives them a bit of breathing room to hold firm on rates and focus on inflation, but if the labor market continues to deteriorate, the pressure to cut rates to support the economy will become immense.
The data reveals a fascinating split in investment: while overall private business investment fell slightly, spending on intellectual property, including AI, grew 5.4%. Could you elaborate on this trend and what the decline in physical structures like offices signals about our economic future?
This divergence in investment is one of the most telling indicators of the structural shifts happening in our economy. The 5.4% growth in intellectual property investment is a direct reflection of the technological revolution we’re in, with AI being the clear protagonist. Companies across various sectors are pouring capital into software, research, and digital infrastructure because they see it as the primary driver of future productivity and competitiveness. This followed an even bigger 15% jump in the second quarter. Conversely, the decline in investment in nonresidential buildings like offices and warehouses signals a profound change in how business is conducted. The pandemic accelerated the move to remote work and more efficient supply chains, making massive physical footprints less necessary. We are witnessing a fundamental pivot from an economy built on concrete and steel to one built on data and algorithms.
What is your forecast for U.S. economic growth in the upcoming year?
Looking ahead, I anticipate a significant moderation from the torrid 4.3% pace we saw in the third quarter. That figure feels more like a final burst of post-pandemic momentum rather than a sustainable trend. Several headwinds are gathering. The consumer, who has been the bedrock of this expansion, is showing clear signs of fatigue, particularly among lower-income households. The cumulative effect of the Federal Reserve’s earlier rate hikes will continue to work its way through the economy, constraining borrowing and investment. Furthermore, the slowing labor market, with unemployment rising and job creation weakening, will inevitably weigh on household incomes and spending. While I don’t necessarily foresee a deep recession, I expect growth to slow to a more modest and sustainable level as the economy finally absorbs the shocks and adjustments of the past few years.
