Home » Growth of economy returns to U.S. in 3Q

Growth of economy returns to U.S. in 3Q

Economic growth in the United States rebounded over the summer, the latest government data shows, but slowing consumer spending and a rapidly flagging housing market mean the report is likely to offer little to ease fears of a looming recession.

Gross domestic product rose 0.6% in the third quarter, growing at a compound annual rate of 2.6%, the Commerce Department reported on Thursday. It was the first rise after two consecutive quarterly contractions this year and slightly exceeded forecasters’ expectations. The median forecast from a Bloomberg survey of economists called for a 2.4% increase in GDP for the quarter.

Stronger exports and consumer spending, supported by a healthy job market, helped restore growth in the world’s largest economy at a time when worries about a possible recession are mounting, according to the agency.

“For months, naysayers have argued that the US economy is in recession, and congressional Republicans are firing on a slowdown,” President Joe Biden said in a statement Thursday. “We need to make more progress on our biggest economic challenge: bringing down high prices for American families.”

Consumer spending, which accounts for about 70% of US economic activity, grew at an annual rate of 1.4% in the July-September quarter, compared to a 2% rate from April to June. It is widely expected to continue falling.

“‘Borrowed time’ is how I would describe the consumer right now,” said Tim Quinlan, senior economist at Wells Fargo. “Credit card borrowing has gone up, saving has gone down, our expenses are going up faster than our paychecks.”

Meanwhile, according to Thursday’s data, home investment plunged 26% annually, hit by rising mortgage rates as the Federal Reserve aggressively raises borrowing costs to fight chronic inflation.

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The decline marked the sixth straight quarterly decline in home investment.

The Fed has hiked rates five times this year and will do so again next week and in December. Fed Chair Jerome Powell has warned that the central bank’s rate hikes will bring “pain” in the form of higher unemployment and a possible recession.

The average interest rate on a 30-year fixed-rate mortgage, a year ago just 3.14%, was above 7% this week for the first time since 2002, reported mortgage buyer Freddie Mac – the Federal Home Loan Mortgage Corp. – on Thursday. Existing home sales have declined for eight straight months. The construction of new homes fell by almost 8% compared to the previous year.

Economists noted on Thursday that the increase in GDP in the third quarter was entirely due to the increase in exports, which added 2.7 percentage points to the expansion of the economy. Export growth will be difficult to sustain as the global economy weakens and a strong US dollar makes American products more expensive in foreign markets.

Thursday’s report offered some encouraging news on inflation. A price index in the GDP data rose at an annual rate of 4.1% in July-September, compared with 9% in the April-June period — less than economists had expected and the smallest increase since the last three months of 2020.

US economic growth for the quarter reversed annual declines of 1.6% in January-March and 0.6% in April-June. Consecutive quarters of contraction is an informal definition of a recession.

Officially, however, recessions are determined by a group of researchers from the National Bureau of Economic Research, who examine a broader range of indicators, including employment, income and spending.

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Most analysts don’t think the economy fits this more formal definition, and the third-quarter numbers — which slightly beat forecasters’ expectations — provided further evidence that a recession was not yet underway.

But most economists have said they believe the economy has at least avoided a recession, citing the still-resilient job market and steady consumer spending.

However, most of them have expressed concerns that a recession is likely next year as the Fed steadily tightens credit.

Preston Caldwell, head of US economics at financial services firm Morningstar, noted that much of the economy’s slowdown in the first half of the year was caused by factors that didn’t reflect underlying health, and therefore “very likely didn’t represent a real economy slowing down.”

For example, he pointed to a decline in corporate inventories, a cyclical event that tends to reverse over time.

Nevertheless, the economy retains its strengths. One of them is the vital labor market. Employers have added an average of 420,000 jobs per month this year, making 2022 on track to become the second-best year for job creation (behind 2021) in Labor Department records dating back to 1940.

The unemployment rate was 3.5% last month, hitting a half-century low. However, recruitment has slowed. In September, the economy added 263,000 jobs – solid but the lowest total since April 2021.

International events are also causing further concerns. Russia’s invasion of Ukraine has disrupted trade and pushed up energy and food prices, causing a crisis for poor countries, and the International Monetary Fund this month downgraded its outlook for the world economy in 2023, citing Russia’s war.

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The information for this article was contributed by Paul Wiseman of The Associated Press; Ben Casselman of The New York Times; and Reade Pickert and Josh Wingrove of Bloomberg News (TNS)

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