Despite inflation, U.S. GDP grew last quarter

The U.S. economy grew at a 2.6% annual pace from July through September, the government reported Thursday, marking a remarkable return from the first two quarters of the year, when the nation’s gross domestic product contracted.

Consumers and businesses are coping with soaring inflation, and rising interest rates are fast chilling the property market. And the prognosis for the global economy becomes more dismal as Russia’s war against Ukraine continues.

According to FactSet, economists had predicted the economy would grow at a 2% annual rate in the third quarter. The GDP increase in the third quarter reverses yearly decreases of 1.6% from January to March and 0.6% from April to June.

The most recent growth data are expected to alleviate fears that the United States is on the verge of a recession in the near future. However, the stronger-than-anticipated economic growth in the most recent quarter increases the likelihood that the Federal Reserve will continue to quickly raise interest rates, which economists say might spark a recession.

In an email sent after the release of the GDP figures, Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, stated, “On the one hand, it is nice to see that the economy is continuing to develop, which should augur well for the stock market, all else being equal.”

Zaccarelli continued, “However, considering that we are in the midst of an inflation battle, it is likely that the Federal Reserve will feel compelled to maintain their aggressive rate hikes.”

Despite the robust GDP figure, there are indications that the Fed’s rate hikes are effectively putting the brakes on economic growth. Paul Ashworth, chief North American economist at Capital Economics, remarked that the increase in GDP was “totally attributed to a 2.7% lift from net external trade.”

Ashworth observed that final sales to domestic customers, a measure of how much Americans are purchasing and a greater indicator of underlying economic demand, increased by only 0.1% annually. That is “the worst performance since the epidemic struck in the second quarter of 2020,” he observed.

The S&P 500 index increased 9 points, or 0.2%, to 3,833 in early trading, while the Dow rose 466 points, or 1.5%.

“Top-line growth was robust, and although consumption slowed, it was still positive, underscoring the resilience of the U.S. economy’s primary engine,” he noted.

Recession imminent?

Economists anticipate a slowing of economic growth in the fourth quarter as the impact of exports wanes. Gregory Daco, chief economist at Parthenon, described the third-quarter GDP report as a “final hurrah,” suggesting that the U.S. could experience a recession within the next 12 months.

He stated, “The U.S. economy is certainly cooling.” While the U.S. economy is the squeaky-cleanest garment in the global washing basket, it is likely to enter a recession before the end of the year.

Some economists think the United States will enter a recession at 05:23 next year.

Employers have added an average of 420,000 jobs per month this year, putting 2022 on track to be the second-best year for job growth in Labor Department data dating back to 1940, following 2021. The unemployment rate equaled a half-century low of 3.5% last month.

The economy added 263,000 jobs in September, which is strong but the lowest level since April 2021. According to Ian Shepherdson, chief economist at Pantheon Macroeconomics, job growth is anticipated to decelerate further in October.

“Payrolls are a better indicator of the underlying rate of domestic final demand than headline growth, and we’re continuing to our assessment, based on the Homebase data, that employment growth in October will be just about 50K,” he wrote in a report.

—According to Associated Press reporting