The U.S. economy grew faster than expected in the third quarter of 2023, as consumer spending was the tide that lifted all boats.

Gross domestic product (GDP)—the value of all goods and services produced in the economy—grew at an annual pace of 4.9% in the third quarter, according to the Commerce Department. That was more than double the growth rate of the second quarter, which was 2.1%.

While many factors propelled the economy forward last quarter, the American consumer led the way as spending increased by a hefty 4%. That’s up from a modest 0.8% increase in the second quarter.

“This report confirmed what we already knew: The consumer went on a shopping spree in the third quarter,” Michael Arone, chief investment strategist at State Street Global Advisors, told CNBC.

Despite the robust growth pace, some economists aren’t convinced that the consumer can keep doing the economy’s heavy lifting.

Q3’s growth pace will be hard to repeat

Many analysts are still predicting a sharp slowdown in the final quarter of 2023, which could extend into next year. They believe it’s only a matter of time before rising debt levels, declining savings, and high interest rates squash consumer spending.

Bloomberg economist Eliza Winger believes third-quarter growth was fueled by “temporary factors” related to consumer spending, “which isn’t sustainable with disposable income dropping,” she said.

“It would be very surprising if consumption growth remains this strong in the fourth quarter,” Andrew Hunter, deputy chief U.S. economist at Capital Economics, told The Wall Street Journal. “There’s room for higher rates and various other headwinds to start taking a bit more of a toll.”

But it’s not just the consumer who will feel the pinch of higher rates. Businesses are also struggling with higher costs, leading them to pull back on investments and hiring, according to a recent Minneapolis Fed survey.

All eyes on the Fed

The GDP spike has Wall Street asking whether the Fed has another rate hike up its sleeve. According to CME Group, traders increased their bets on a December rate hike to around 25% shortly after the GDP report was released.

While Fed officials have signaled multiple times that they’re content with interest rates where they are, they haven’t fully closed the door on another increase.

"While this one [GDP] number makes the Fed wary of cutting rates, it does not move the needle for the November FOMC meeting,” said Goldman Sachs’ head of multi-sector fixed income Lindsay Rosner, referring to the Fed’s upcoming meeting on Oct. 31-Nov. 1.

In her view, the Fed will pass on making any changes to interest rates next week.

“Higher and hold, yes. Higher and hiking, no,” she said.