U.S. economy grew 2.9% in Q3

The government said Wednesday that the U.S. economy expanded at a strong 2.9% annual rate from July through September despite high interest rates and persistent inflation.

The U.S. economy’s overall output of goods and services, or gross domestic product, increased last quarter after declining for the previous two. Despite a still-strong employment market and solid consumer spending, the first half of the year’s output fall had given rise to worries that the economy may have entered a recession.

Since then, however, the majority of indications have pointed to a strong but slowly growing economy, driven by consistent hiring, a large number of job opportunities, and low unemployment. According to the government data released on Wednesday, significant export growth and higher-than-expected consumer spending drove the recovery of growth during the July–September period.

“Despite higher borrowing costs and prices, household spending – the driver of the economy – appears to be holding, which is a positive development for the near-term outlook,” industry expert Rubeela Farooqi said.

This was the second of the Commerce Department’s three predictions for third-quarter GDP growth. The agency had initially predicted that the economy increased at a 2.6% annual rate in the previous quarter.

According to a survey of forecasts done by the Federal Reserve Bank of Philadelphia, economists anticipate the economy to grow by a meagre 1% annually from October through December. Despite supply chains that had been backed up since the economy started to recover from the pandemic slump two years ago, the manufacturing sector of the country is faltering. Additionally, inflation poses a threat to undermine the vital holiday buying season. Retailers report that consumers who are weary of inflation are buying cautiously and saving their money for the best deals.

However, a recession—even a likely minor one—is generally anticipated in 2023 as a result of the Federal Reserve’s aggressive interest rate hike campaign to combat the worst inflation in four decades. Six times this year, the Fed has increased its benchmark short-term rate, including four consecutively large increases of three-quarters of a percentage point. When it meets again in mid-December, the central bank is anticipated to announce a further half-point increase in its benchmark rate.

Due to the Fed’s benchmark rate’s impact on several consumer and commercial loans, the economy’s majority of loans have become much more expensive as a result of its recent rate hikes. That has been especially true of mortgage rates, which have wreaked havoc on the housing market in the United States. According to Wednesday’s GDP report, home investment decreased in the period of July to September at a rate of 26.8% annually, with mortgage rates having doubled over the previous year.

Despite a drop from a year-over-year peak of 9.1% in June, consumer price increases of 7.7% in October from a year earlier are still well above the Fed’s 2% target, as Chair Jerome Powell has emphasised. Since the first half of the year’s GDP loss didn’t indicate any significant underlying weaknesses in the economy, economists had dismissed it. Instead, it was mostly brought on by an increase in imports and a drop in company inventories.

The labor market has been fairly resilient in the interim. So far in 2022, employers have added a respectable 407,000 jobs every month on average. And according to a study conducted by the data company FactSet, experts anticipate that the country will add 200,000 new jobs this month. On Friday, the government will release the November jobs data.