US GDP rebounds 2.6% in third quarter

US GDP rebounds 2.6% in third quarter

The US economy rebounded in the third quarter after contracting in the first six months of this year, as the narrowing trade deficit masked weaker consumer demand.

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

The expansion in the third quarter was propelled by a narrowing trade deficit as weaker consumer demand dampened imports while exports rose. This comes despite a widening of the goods deficit in September, as the strength of the US dollar weighed on exports. Consumer spending grew only 1.4%, much slower than in the previous period, a sign that the economy is starting to slow down.

The data, released Thursday by the Commerce Department, effectively ends a debate that raged over the summer over whether the U.S. economy was already in a recession, but it didn’t do much. -something to dispel fears that she will end up in an aggressive situation. measures taken by the US central bank to eradicate high inflation.

Two consecutive quarters of GDP contraction have long been considered a common criterion for a so-called “technical recession”. However, top policymakers in the Biden administration and the Federal Reserve forcefully pushed back against that framework, citing ample evidence that the economy was still on solid footing.

The official arbiters of a recession, a group of economists from the National Bureau of Economic Research, characterize it as a “significant decline in economic activity that spreads throughout the economy and lasts for more than a few months.” . They typically look at a wide range of measures, including monthly job growth, consumer spending on goods and services, and industrial production.

The Fed is set to make its fourth consecutive 0.75 percentage point interest rate hike early next month, taking its benchmark policy rate to a new target range of 3.75% to 4%. As recently as March, the federal funds rate hovered around zero, making this tightening campaign one of the most aggressive in the history of the US central bank.

While the Fed may soon consider slowing the pace of its rate hikes, potentially as early as December, it is not expected to completely move away from restrictive monetary policy.

Last month, most officials thought the federal funds rate would peak at 4.6%, but investors now expect it to edge closer to 5% next year.

Given the expected impact of the Fed’s actions on growth and the labor market, most economists now expect the unemployment rate to rise significantly from its current level of 3.5% and that the economy slips into a recession next year.

Senior Biden administration officials argue the U.S. economy is strong enough to avoid that outcome, citing labor market resilience, but even Fed Chairman Jay Powell acknowledged the odds have increased.

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

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