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The US economy heated up more than expected in the third quarter, government data showed on Thursday, as a resilient job market helped boost consumer spending, holding off the prospect of a recession. online news

Analysts have raised fears of a downturn as the US central bank started lifting interest rates rapidly last year to fight inflation, but the world’s biggest economy has so far defied these predictions.

A key factor is the strong labor market, which has provided healthy wage growth, allowing consumers to keep spending even as they draw down on pandemic-era savings.

Gross domestic product growth came in at an annual rate of 4.9 percent for the July to September period, the quickest pace since late 2021, according to Commerce Department data.

The latest GDP figure is a significant bump from the second quarter’s 2.1 percent expansion, and much higher than the 4.0 percent analysts expected.

It also comes as President Joe Biden works to bolster sentiment on his handling of the economy as he seeks reelection in 2024.

“I never believed we would need a recession to bring inflation down –- and today we saw again that the American economy continues to grow even as inflation has come down,” Biden said in a statement.

He called this “a testament to the resilience of American consumers and American workers,” touting the effects of an economic agenda he dubs “Bidenomics.”

The GDP pick up reflects “accelerations in consumer spending, private inventory investment, and federal government spending” among other factors, said the Commerce Department.

Growth to slow?

“The US economy continued to show remarkable resilience over the summer with surprisingly robust job growth and an unexpected consumer spending spree,” said EY chief economist Gregory Daco.

“While these signs of economic strength will fuel speculations that the economy is reaccelerating, we do not expect such strong momentum will be sustained,” he told AFP.

A 4.0 percent leap in consumption propelled GDP growth — contributing 2.7 percentage points to the headline number, said Ian Shepherdson of Pantheon Macroeconomics.

But analysts expect growth to slow in the final three months this year.

“As excess savings built up during the pandemic continue to drop and wage gains decelerate, it is difficult to see how this pace of consumer spending growth can be maintained,” said economist Mike Fratantoni at the Mortgage Bankers Association.

“We are now seeing some consumer stress in the rising delinquency rates for credit cards and auto loans,” he added.

Apart from the drawdown in savings, employment gains are likely to cool while borrowing rates have risen further for consumers and businesses, said Nationwide chief economist Kathy Bostjancic.

Downturn risk

For now, a robust growth figure adds to hope that the country can lower inflation without triggering a recession.

But if the trend persists, it could lead policymakers to consider further interest rate hikes to rein in price increases in a sustainable way.

“A year-end recession now appears unlikely,” said Michael Pearce of Oxford Economics.

But he cautioned: “There is still a strong case to expect a sharp downturn over coming quarters.”

Bostjancic expects a “mild recession” in 2024, with the largest contraction taking place in the second quarter next year.

This comes as “tighter financial and lending conditions choke off economic activity,” she said.

A separate report on Thursday showed that durable goods orders rose 4.7 percent in September, on the back of a surge in volatile transportation orders for aircraft.

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economy online news

Notes from APS Radio News

A number of economists have expressed concern that increases in short-term interest rates, as have been implemented by the Federal Reserve, as well as increases in long-term interest, as in the case of 10 & 30 year Treasury bonds, eventually will constitute a drag on the economy, as borrowing for individuals and companies becomes more expensive.

Reportedly because of what was being called a “pandemic”, a number of the world’s central banks embarked on massive programs of monetary expansion, starting in late February and early March of 2020.

For its part, between the early part of March of 2020 to over a year later, the US Federal Reserve added over $4 trillion to its holdings, by purchasing billions of dollars’ worth of Treasury bonds and corporate bonds each month during that period.

As well, at that time it kept interest rates rather low.

Other central banks, including the Bank of Japan and the European Central Bank, followed similar policies.

In addition, during that period many countries engaged in lockdowns; many small and medium-sized businesses and enterprises were shuttered by way of orders issued by public health officials, politicians and various administrators.

One of the direct causes of those shutdowns was the development of shortages.

According to a number of economists, the combination of shortages of various goods and services and massive programs of “quantitative easing” led to substantially higher rates of inflation.

In consequence of shuttered economies and higher rates of inflation in the first world, less developed countries suffered greatly, due, in part, to shortages of supplies and due to lowered demand.

For some time, in its articles about China, The Wall Street Journal has pointed to “covid” related lockdowns as being one of the major causes of China’s downturn in its economy.

In the US, by October of 2020, over 100,000 businesses had been shuttered by way of lockdowns

In part, below is a copy of today’s report published by the Bureau of Economic Analysis

Gross Domestic Product, Third Quarter 2023 (Advance Estimate)

Real gross domestic product (GDP) increased at an annual rate of 4.9 percent in the third quarter of 2023 (table 1), according to the “advance” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 2.1 percent.

The GDP estimate released today is based on source data that are incomplete or subject to further revision by the source agency (refer to “Source Data for the Advance Estimate” on page 2). The “second” estimate for the third quarter, based on more complete data, will be released on November 29, 2023.

The increase in real GDP reflected increases in consumer spending, private inventory investment, exports, state and local government spending, federal government spending, and residential fixed investment that were partly offset by a decrease in nonresidential fixed investment (table 2). Imports, which are a subtraction in the calculation of GDP, increased.

The increase in consumer spending reflected increases in both services and goods. Within services, the leading contributors were housing and utilities, health care, financial services and insurance, and food services and accommodations. Within goods, the leading contributors to the increase were other nondurable goods (led by prescription drugs) as well as recreational goods and vehicles. The increase in private inventory investment reflected increases in manufacturing and retail trade. Within nonresidential fixed investment, a decrease in equipment was partly offset by increases in intellectual property products and structures.

Compared to the second quarter, the acceleration in real GDP in the third quarter reflected accelerations in consumer spending, private inventory investment, and federal government spending and upturns in exports and residential fixed investment. These movements were partly offset by a downturn in nonresidential fixed investment and a deceleration in state and local government spending. Imports turned up.

Current dollar GDP increased 8.5 percent at an annual rate, or $560.5 billion, in the third quarter to a level of $27.62 trillion. In the second quarter, GDP increased 3.8 percent, or $249.4 billion (table 1 and table 3).

The price index for gross domestic purchases increased 3.0 percent in the third quarter, compared with an increase of 1.4 percent in the second quarter (table 4). The personal consumption expenditures (PCE) price index increased 2.9 percent, compared with an increase of 2.5 percent. Excluding food and energy prices, the PCE price index increased 2.4 percent, compared with an increase of 3.7 percent.

Personal Income

Current-dollar personal income increased $199.5 billion in the third quarter, compared with an increase of $239.6 billion in the second quarter. The increase reflected increases in compensation, proprietors’ income, personal income receipts on assets, and rental income of persons that were partly offset by a decrease in personal current transfer receipts (table 8).

Disposable personal income increased $95.8 billion, or 1.9 percent, in the third quarter, compared with an increase of $296.5 billion, or 6.1 percent, in the second quarter. Real disposable personal income decreased 1.0 percent, in contrast to an increase of 3.5 percent.

Personal saving was $776.9 billion in the third quarter, compared with $1.04 trillion in the second quarter. The personal saving rate—personal saving as a percentage of disposable personal income—was 3.8 percent in the third quarter, compared with 5.2 percent in the second quarter.

Source Data for the Advance Estimate

The GDP estimate released today is based on source data that are incomplete or subject to further revision by the source agency. Information on the source data and key assumptions used in the advance estimate is provided in a Technical Note and a detailed “Key Source Data and Assumptions” file posted with the release. The “second” estimate for the third quarter, based on more complete data, will be released on November 29, 2023.