The U.S. economy demonstrated stronger-than-expected growth in the third quarter, fueled by robust consumer spending, according to updated data. The sustained growth momentum, coupled with a reduced risk of rapid labor market cooling, has provided the Federal Reserve with justification for its recent hawkish policy shift.

On December 19, the U.S. Department of Commerce announced that the final GDP growth rate for Q3 was 3.1% (annualized, seasonally adjusted), surpassing the preliminary estimate of 2.8% released a month earlier. This figure also exceeded the 2.9% forecast by analysts surveyed by Dow Jones.

The final GDP data incorporates economic indicators not available during the preliminary estimate. The Department of Commerce attributed the upward revision to stronger-than-expected export and consumer spending figures. Exports rose by 9.6%, a 2.1 percentage-point increase from the preliminary estimate, while personal consumption expenditures grew by 3.7%, up 0.2 percentage points. The growth in consumer spending marks the highest increase since Q1 of last year (4.9%).

Despite forecasts that consumer spending would slow in the second half of the year due to slowing wage growth and dwindling household savings, these predictions have proven inaccurate. With consumer spending accounting for roughly two-thirds of GDP, it remains a cornerstone of the U.S. economy.

With the Q3 data revised upward, the U.S. economy has now recorded annualized growth above 3% for two consecutive quarters, following a 3.0% growth rate in Q2. Unlike South Korea, the U.S. reports GDP growth rates as annualized figures based on quarter-over-quarter changes, seasonally adjusted.

The data underscores the resilience of the U.S. economy and suggests that the labor market is less likely to cool rapidly.

Bolstered by this positive economic news, U.S. stock markets ended the tumultuous third week of December on a high note.

On December 20, the Dow Jones Industrial Average rose by 498.02 points (1.18%) to close at 42,840.26. The S&P 500 gained 63.77 points (1.09%) to reach 5,930.85, while the tech-heavy Nasdaq climbed 199.83 points (1.03%) to 19,572.60. This marked the first time in 11 trading sessions that all three major indices closed higher.

The Dow Jones, which had endured a 10-day losing streak until December 18—the longest since 1974—managed a sharp rebound over the next two days. The S&P 500 also saw its biggest single-day gain since early November.

Federal Reserve Chair Jerome Powell expressed optimism in a post-Federal Open Market Committee (FOMC) press conference, stating, “The downside risks to the labor market appear to have diminished. The U.S. economy is remarkable.”

The Federal Reserve initiated a rate-cutting cycle in September, citing easing inflation and a cooling labor market as justification for a 0.50% rate cut (the so-called "big cut"). However, with inflation stabilization slowing and labor market risks receding, the Fed has signaled a return to a more hawkish stance, indicating a slower pace of rate reductions.