US GDP rebounds 2.6% in the third quarter

The US economy recovered in the third quarter after contracting for the first six months of this year, as a narrowing trade deficit weakened consumer demand.

Between July and September, GDP grew 2.6 per cent year-on-year, exceeding economists’ expectations and marked a sharp reversal from the 0.6 per cent decline in the second quarter of 2022 and the 1.6 per cent drop recorded in the first three months. of the year

Expansion in the third quarter was driven by a narrowing of the trade deficit, as imports contracted due to a reduction in consumer demand, while exports increased. This comes despite the widening of the goods deficit in September as a stronger US dollar weighed on exports. Consumer spending grew only 1.4 per cent, much slower than the previous period, a sign that the economy is beginning to slow down.

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Data released Thursday by the Commerce Department effectively ended the debate that raged over the summer about whether the US economy was already in recession, but it did little to allay fears that it might eventually go aggressive. Will comment on seeing. The US central bank is taking steps to stamp out increased inflation.

A declining GDP for two consecutive quarters has long been considered a common criterion for a so-called “technological slowdown”. However, top policymakers in the Biden administration and the Federal Reserve pushed back forcefully on that framing, citing substantial evidence that the economy was still in a strong position.

The official mediator of a recession, a group of economists at the National Bureau of Economic Research, characterizes one as “a significant decline in economic activity that extends across the economy and lasts for more than a few months”. They typically look at a wide range of metrics, including monthly job growth, consumer spending on goods and services, and industrial output.

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The Fed is set to raise interest rates to 0.75 percent for the fourth time in a row early next month, raising its benchmark policy rate from 3.75 percent to a new target range of 4 percent. As recently as March, the federal funds rate hovered near zero, making this tough campaign the most aggressive in US central bank history.

While the Fed may consider slowing the pace of its rate hikes soon, potentially as early as December, it is not expected to do away with tighter monetary policy altogether.

Until last month, most officials thought the fed funds rate would hit 4.6 percent, but now investors expect it to close at 5 percent next year.

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Given how big the Fed’s actions are expected to have an impact on growth and the labor market, most economists now expect the unemployment rate to materially rise from its current level of 3.5 percent and the economy into recession next year. .

Top officials in the Biden administration say the US economy is strong enough to avoid that outcome, citing the resilience of the labor market, but Fed Chairman Jay Powell has also acknowledged that the odds have risen.

“No one knows whether this process will lead to a recession or if so, how significant that slowdown will be,” he said at his last press conference in September.

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