The United States economy exceeded expectations by showing robust growth in the third quarter. Despite facing higher interest rates, ongoing inflation pressures, and numerous domestic and global challenges, the United States economy managed to expand at an even faster pace than anticipated.
The Report
The Commerce Department’s report, released on Thursday, revealed that the Gross Domestic Product (GDP), a key measure of all goods and services produced in the United States, increased at a seasonally adjusted 4.9% annualized rate during the July-to-September period. This marked a significant improvement from the unrevised 2.1% growth rate recorded in the second quarter. Economists surveyed by Dow Jones had initially predicted a 4.7% acceleration in GDP, taking into account inflation adjustments.
The remarkable surge in GDP was attributed to several contributing factors, including strong consumer spending, increased inventories, growth in exports, higher residential investments, and increased government spending. Specifically, personal consumption expenditures, which measure consumer spending, rose by 4% in the third quarter, a significant leap from the 0.8% recorded in the previous quarter. Gross private domestic investments experienced an impressive 8.4% increase, while government spending and investment surged by 4.6%.
Consumer spending was evenly distributed between goods and services, with both categories seeing notable growth, at 4.8% and 3.6%, respectively. This upswing in GDP marked the most substantial gain since the fourth quarter of 2021.
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Underwhelming Market Reactions
Despite this positive economic news, market reactions were relatively muted, with stocks showing mixed performance in early trading, and Treasury yields mostly decreasing. Michael Arone, Chief Investment Strategist for U.S. SPDR Business at State Street Global Advisors, emphasized that the report essentially confirmed the known fact that consumers engaged in a significant spending spree during the third quarter.
Regarding monetary policy, while the report may provide the Federal Reserve with reasons to maintain a tight policy, traders still showed no expectation of an interest rate hike at the central bank’s next meeting, according to CME Group data.
Economists expect a slowdown
Economists, on the other hand, anticipate a considerable slowdown in growth in the coming months. However, they generally believe that the United States economy will manage to avoid a recession, provided no unexpected shocks occur.
Matthew Ryan, Head of Market Strategy at Ebury, noted that “no recession is in sight,” and policymakers can continue with higher interest rates to combat inflation. The report also revealed that the chain-weighted price index, which gauges inflation by accounting for changes in consumer shopping patterns, increased by 3.5% in the third quarter, up from 1.7% in the second quarter.
