In a remarkable turn of events, the US economy has experienced its most robust growth in nearly two years during the third quarter of this year. The upswing has been driven by a combination of higher wages stemming from a tight labor market and robust consumer spending, effectively defying the recession forecasts that have loomed since 2022.
According to advance estimates from the Commerce Department’s Bureau of Economic Analysis, the Gross Domestic Product (GDP) surged at an annualized rate of 4.9% in the third quarter. This marks the swiftest rate of growth since the fourth quarter of 2021, surpassing economists’ expectations, who had forecasted a more modest 4.3% increase, as revealed in a Reuters poll. This remarkable performance follows the 2.1% growth registered in the April-June quarter, demonstrating a significant acceleration in economic activity beyond the approximately 1.8% non-inflationary growth rate projected by Federal Reserve (Fed) officials.
These latest figures are suggestive of a potential “soft-landing” scenario, which is supported by data from the second quarter. This data included metrics such as worker productivity and moderation in unit labor costs, further reinforcing the notion that the Fed could orchestrate a gradual economic slowdown, preventing a sudden recessionary spiral.
The backbone of this outstanding growth is undoubtedly consumer spending, which accounts for over two-thirds of all economic activity in the United States. The resilience of the labor market has played a pivotal role in bolstering consumer spending, with a separate report from the Labor Department indicating a slight uptick in new claims for state unemployment benefits. In the week ending October 21, new claims rose to 210,000, up from 200,000 in the prior week. Although wage growth has experienced some deceleration in recent months, it has managed to outpace inflation, thereby increasing the purchasing power of households. This added buying power has likely contributed to the acceleration of growth in the third quarter.
It is noteworthy, however, that the reported GDP data is unlikely to have an immediate impact on the Federal Reserve’s near-term policy decisions. Despite this strong economic performance, surges in US Treasury yields and recent stock market fluctuations have contributed to tightened financial conditions. Current market expectations suggest that the Fed will maintain steady interest rates at their upcoming meeting scheduled for October 31 – November 1, as indicated by CME Group’s FedWatch. Since March, the US central bank has already increased its benchmark overnight interest rate to a range of 5.25% to 5.50%.
The exceptional performance of the US economy in the third quarter underscores its capacity for resilience and sustained growth in the face of economic challenges.
In summary, the latest economic data from the fourth quarter paints a rosy picture for the US economy, lending credibility to earlier predictions that, as long as consumer spending remains robust, the nation could potentially avert a recession. This extraordinary growth, driven by consumer spending and labor market strength, serves as a testament to the resilience of the US economy in the face of persistent recessionary concerns.
Source: Reuters
