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Despite high interest rates and chronic inflation, the U.S. economic system grew at an annual rate of 2.9% from July to September, the government noted Wednesday, an improvement over its preliminary estimate.
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The upward momentum in the remaining quarter of gross domestic product – the total output of goods and functions in the economy – followed two consecutive quarters of contraction. This drop in output raised fears that the economic climate might have entered a recession in the first half of the year, despite a still robust labor market and steady consumer spending.
However, considering that at the time, most indicators pointed to a resilient, albeit slow, financial system driven by steady hiring, many job openings, and low unemployment. Wednesday's executive report showed that the recovery in growth during the July-September period was led by strong gains in exports and higher-than-expected spending by buyers.
“Despite higher prices and borrowing costs, household spending – the engine of the economic system – appears to be holding steady, which is a good building block for the near-term outlook,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics.
He delivered the second of three estimates the Commerce branch will make regarding economic growth in the third quarter. In its preliminary estimate, the department projected that the economic climate grew at an annual rate of 2.61% in the last quarter.
Economists predict the economic system will see a modest annualized increase of 1% from October to December, according to a forecast survey conducted by the Federal Reserve Bank of Philadelphia. The country's manufacturing sector is slowing, despite the easing of supply chains that had been lagging since the economic system began recovering from the pandemic recession two years ago. And inflation is threatening to weaken the crucial holiday shopping season. Retailers say inflation-weary customers are shopping cautiously, with many holding onto the most attractive bargains.
But a recession, if possible a mild one, is widely expected in 2023, a result of the Federal Reserve's efforts to tame the worst inflation surge in four years through aggressive interest rate hikes. The Fed has raised its benchmark short-term rate six times this year – including four consecutive increases of three-quarters of a percentage point. The major bank is expected to announce a further half-factor increase in its core expenses at its next meeting in mid-December.
Because the Fed's benchmark cost influences many consumer and business loans, its series of increases has made most borrowing across the economic system extremely expensive. This has been most notably true for loan prices, which have proven devastating for the housing market. With loan prices doubling last year, housing investments shrank between July and September at an annual rate of 26.8%, according to Wednesday's GDP report.
Chairman Jerome Powell announced that the Fed will do whatever it takes to contain the spikes in customer interest rates, which soared 7.7% in October compared to the previous 12 months – a slowdown from a year-over-year high of 9.1% in June, but still tremendously above the Fed's target of 2%.
Economists ignored the contraction in GDP in the first half of the 12 months, as it did not reflect any underlying weakness in the economy. Instead, it was primarily driven by an influx of imports and a reduction in business inventories.
Meanwhile, the job market has remained distinctly durable. Employers have created a decent average of 407,000 jobs per month so far in 2022. And based on a survey by the news firm FactSet, economists predict the country gained another 200,000 jobs this month. The government will release the November jobs report on Friday.
