GDP report shows economy grew, but fears of recession still loom
Call it the calm before the storm.
After shrinking the first half of the year, the U.S. economy rebounded from July through September despite inflation that has hovered near a 40-year high and sharply rising interest rates. But the performance likely marked a reprieve ahead of next year’s projected recession rather than a sign of a brighter outlook.
The solid showing was fueled by a more favorable trade balance and modest rises in consumer and business spending, offsetting another plunge in housing construction and weaker business stockpiling.
“The U.S. economy is undeniably cooling,” Gregory Daco, chief economist of EY-Parthenon, wrote in a note to clients.
The nation’s gross domestic product, the value of all goods and services produced in the U.S., grew at a seasonally adjusted annual rate of 2.6% in the third quarter, the Commerce Department said Thursday. Bloomberg had forecast a 2.3% rise in output.
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The advance followed declines of 1.6% and 0.6% in the first and second quarters that were largely due to changes in business stockpiling and trade – two volatile categories that typically don’t reflect the health of the economy.
Is a recession coming in 2023?
While those contractions met an informal benchmark for recession, the National Bureau of Economic Research looks at a broader range of economic activity, including employment, retail sales and industrial production, before determining when a downturn begins and ends. Most economists don’t believe the U.S. is in a recession, citing slowing but still-vibrant job growth.
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There’s little doubt, though, that the economy is losing steam as households and businesses curtail spending amid soaring inflation and the Federal Reserve’s aggressive interest rate hikes aimed at tempering the price increases.
Final sales that exclude trade, inventories and government purchases – and thus reflect the economy’s underlying health – nearly flatlined, inching up just 0.1% after a 0.5% rise the prior quarter, the GDP report showed.
And earlier this month, the government said employers added a sturdy 263,000 jobs in September but that was down from an average 382,000 the prior three months.
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The economy is expected to grow meekly the final three months of the year before contracting during the first and second quarters of 2023, according to economists surveyed this month by Wolters Kluwer Blue Chip Economic Indicators. Following 5.7% growth last year — a 37-year high — as the economy reopened after COVID-induced shutdowns, they expect gains of just 1.6% this year and 0.2% in 2023.
Seventy-eight percent of the economists expect a recession next year. And while most believe it will…
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