The U.S. economy is on track to deliver an impressive performance in the third quarter of the year, with a projected annualized gain of 4.7% in Gross Domestic Product (GDP). This would be the strongest output since the close of 2021 when the growth rate came close to 7%. The Commerce Department is set to release the first GDP estimate at 8:30 a.m. ET, with all eyes on the data for insights into the nation’s economic health.

Despite the positive Q3 GDP projection, economists and policymakers are cautious about celebrating too soon. Joseph LaVorgna, Chief Economist at SMBC Nikko Securities America, warns that GDP figures alone don’t reveal the full economic picture, and it’s crucial to focus on future prospects. The economy’s trajectory beyond Q3 is what matters most.

Consumer spending has been a major driver of the U.S. economy’s resilience over the past two years, keeping growth afloat even as many anticipated an economic slowdown or recession. The Atlanta Fed’s GDPNow model forecasts growth of 5.4% for Q3, with over half of this growth attributed to consumer spending. Exports are expected to contribute about 1 percentage point, while inventories are projected to add 0.7 points.

LaVorgna believes that the consumer will play a significant role in the anticipated 4.1% GDP gain, but warns that higher borrowing costs and a potential dip in demand for big-ticket items could challenge this trend. “There’s a lot on the docket that suggests Q3 might be the last pop in growth for a while,” he says.

The U.S. economy and its key consumer component have defied expectations in the past. Despite concerns about economic slowdowns and potential recessions, the economy has remained resilient, thanks in part to the Federal Reserve’s policies and consumers’ willingness to spend and borrow. The tight labor market and job security continue to fuel consumer spending.

However, the recent fluctuations in the bond market, particularly the inverted yield curve, have raised concerns about a looming recession. Experts are closely watching how the economy will respond to these signals.

Markets are left to interpret the strong Q3 GDP projections in various ways. Some may see it as a sign that the Federal Reserve needs to intensify its efforts to combat inflation. Others might view it as a testament to the economy’s resilience in the face of rising interest rates. However, many consider the GDP report to be backward-looking and await additional data for insights into the Fed’s future actions.

As Quincy Krosby, Chief Global Strategist at LPL Financial, points out, “The dilemma in this market is whether the economy can defy historical trends, such as the unwinding of the inverted yield curve.” The coming weeks will provide crucial data, including consumer spending, sentiment, inflation, and the Fed’s favored gauge of price increases, shedding more light on the U.S. economy’s direction.