The US economy demonstrated stronger-than-expected growth in the third quarter of this year, according to the latest data from the Commerce Department’s Bureau of Economic Analysis. However, a subsequent slowdown is becoming apparent as rising borrowing costs put a damper on both hiring and spending.
The revised figures indicate that the gross domestic product (GDP) expanded at an annualized rate of 5.2% in the last quarter, surpassing the initially reported 4.9% pace. This acceleration represents the swiftest pace of expansion since the fourth quarter of 2021, exceeding the projections of economists surveyed by Reuters, who anticipated a 5.0% growth rate.
In contrast to the second quarter’s 2.1% pace, the economy is currently surging well above the non-inflationary growth rate of approximately 1.8%, as deemed by Federal Reserve officials.
The upward adjustment in last quarter’s growth is attributed to enhancements in business investment and state and local government spending. Residential investment and private inventory investment also saw positive revisions. However, a noteworthy revision in the report is the reduction in the growth rate of consumer spending, which constitutes more than two-thirds of US economic activity. Despite the downward adjustment to 3.6%, it still reflects a robust pace. The initial estimate had pegged the growth rate at 4.0%.
Analysts note that consumer spending may have experienced a considerable cooling effect at the onset of the fourth quarter. October saw a decline in retail sales, marking the first contraction in seven months. Additionally, the labor market is exhibiting signs of easing, with job growth decelerating last month and the unemployment rate reaching a nearly two-year high of 3.9%.
Amidst this economic backdrop, there is growing optimism that the Federal Reserve may have completed its cycle of interest rate hikes. Financial markets are even anticipating a potential rate cut in mid-2024, as slowing demand suggests a diminishing need for further tightening measures.
Since March 2022, the US central bank has incrementally increased its benchmark overnight interest rate by 525 basis points, bringing it to the current range of 5.25% to 5.50%. The apparent slowdown in economic indicators could influence the Federal Reserve’s future policy decisions as they navigate the delicate balance between sustaining growth and preventing inflationary pressures. Economists and market participants will be closely monitoring upcoming data releases for further insights into the trajectory of the US economy in the coming months.
In conclusion, as the US economy navigates the complex landscape of economic recovery, the sustained challenge of rising borrowing costs adds a layer of uncertainty, prompting stakeholders across sectors to closely monitor and strategically adapt to this evolving financial terrain.
