US GDP rose 2.6% in the third quarter

The US economy rebounded in the third quarter after that contract During the first six months of this year, the narrowing of the trade deficit masked weak consumer demand.

Gross domestic product rose 2.6 percent year-on-year between July and September, topping economists’ expectations and marking a sharp reversal from the 0.6 percent decline in the second quarter of 2022 and the 1.6 percent decline recorded in the first three months of the year.

The expansion in the third quarter was driven by a narrowing of the trade deficit, as slumping consumer demand dented imports while exports rose. This comes despite the goods deficit widening in September as the strong dollar weighed on exports. Consumer spending advanced just 1.4 percent, much slower than the previous period, a sign that the economy is starting to slow.

The data, released by the Commerce Department on Thursday, effectively expires discussion that erupted over the summer about whether or not the US economy was actually in recession, but did little to allay fears that it would eventually turn into one given the US central bank’s aggressive steps to stamp out high inflation.

Two consecutive quarters of GDP contraction have long been considered a common criterion for the so-called “technical slump”. However, senior policymakers in the Biden administration and at the Federal Reserve have backed away aggressively from this framework, citing ample evidence that the economy remains on firm footing.

The recession’s official arbitrators, a group of economists at the National Bureau of Economic Research, describe one of them as “a significant decline in economic activity that spreads throughout the economy and lasts 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 production.

The Federal Reserve is preparing early next month to introduce a fourth consecutive interest rate increase of 0.75 percentage points, which will raise its benchmark policy rate to a new target range of 3.75 percent to 4 percent. As recently as March, the federal funds rate was hovering near zero, making this tightening campaign one of the most aggressive in US central bank history.

While the Fed may soon consider slowing the pace of rate hikes, likely as soon as December, it is not expected to completely depart from tight monetary policy.

As of last month, most officials believed the federal funds rate would peak at 4.6 percent, but investors now expect it to close at 5 percent next year.

Given the magnitude of the expected impact of the Fed’s actions on growth and the labor market, most economists now expect the unemployment rate to actually rise from its current level of 3.5 percent and for the economy to slip into recession next year.

Senior officials in the Biden administration maintain That the US economy is strong enough to avoid this outcome, citing the resilience of the labor market, but even Jay Powell, Chairman of the Federal Reserve, acknowledged that the odds have risen.

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