The US economy continued to thrive in the third quarter, surpassing forecasts and demonstrating the economy’s amazing forbearance in the face of high borrowing prices and high inflation early this year.
The Commerce Department released its second estimate on Wednesday morning, which shows that from July through September, the gross domestic product—the most comprehensive indicator of economic output—grew at an annualized rate of 5.2%. Seasonal variations and inflation are factored into the GDP.
The department’s initial estimate of a 4.9% growth rate was surpassed by the latest measurement on Wednesday, indicating an even greater rate of increase. It takes into account increased government spending, company investment, household investment, and inventory expansion.
The third quarter’s growth rate for nonresidential fixed investment, or business spending, was revised upward from a 0.1% fall to 1.3%. The revision of residential investment, which often indicates the state of the housing market, was made significantly higher, from 3.9% to 6.2%.
The primary driver of the US economy, consumer expenditure, was lowered slightly, from 4% in the initial estimate to 3.6%. That’s still a healthy growth rate.
Following a strong third quarter, it is generally anticipated that the US economy will expand much more slowly in the last few months of the year as interest rates stay at a 22-year high and consumer savings begin to decline.
For the time being, consumer spending appears to be stable. According to Adobe Analytics, this year’s Black Friday and Cyber Monday sales established records.
Spending in the fourth quarter, however, probably won’t be as hot. For the first time in seven months, retail sales decreased in October, falling 0.1% from September.
The manufacturing and service sectors both experienced a slowdown in economic activity last month, according to business surveys published by the Institute for Supply Management.
Furthermore, there has been a recent cooling of the job market, which influences consumer spending. In September, employers added 297,000 jobs; last month, they added 150,000 positions, less than expected.
A slower rate of growth is also reflected in real-time estimates of GDP for the fourth quarter. As of right now, the Atlanta Fed is estimating that the GDP will grow by 2.1% annually in the fourth quarter.
The US Economy
Gregory Daco, chief economist at EY-Parthenon, warned last month that while some may have believed the economy was on a healthy trajectory, this is not the case. He made this observation in a note on Wednesday.
He stated We continue to believe that cooler days are ahead with rising debt servicing burdens and slowing job growth, dampening consumers’ and businesses’ ability and desire to spend and invest. Cost-weariness is the idea that everything is more expensive now than it was before the pandemic.
Recent clues from central bank officials suggest that the Federal Reserve will likely keep interest rates on hold for the third straight meeting next month. The majority of investors are likewise placing their bets on a third pause.
When deciding on monetary policy, Fed policymakers closely consider many aspects of the US economy, including growth.
Overall, output growth appears to be slowing as I had anticipated, allowing for more advancements in the fight against inflation, Federal Reserve Governor Christopher Waller stated on Tuesday at an American Enterprise Institute event.
Top Fed official Waller, who has always supported a tough approach against inflation, expressed growing confidence that policy is currently positioned to slow the economy and return inflation to the Fed’s target of 2%.
Even though the Federal Reserve is expected to maintain interest rates at a 22-year high during its policy meeting on December 12–13, some policymakers still think there is more space for rate hikes.
One of the most hawkish members of the central bank, Fed Governor Michelle Bowman, stated at an event in Salt Lake City on Tuesday that she anticipates raising the federal funds rate further in order to maintain policy sufficiently restrictive to bring inflation down to our 2% target in a timely manner. She cited the possibility that inflation’s decline could stall.
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