U.S. revises last quarter economic growth rate up to 2.9% – Reuters

Despite high interest rates and chronic inflation, the U.S. economy grew at an annual rate of 2.9% from July to September, the government said Wednesday in a healthy update from its initial estimate.

The last quarter’s rise in U.S. gross domestic product — the economy’s total output of goods and services — followed two straight quarters of contraction. This fall in production had raised fears that the economy had slipped into a recession in the first half of the year despite a still buoyant labor market and stable consumer spending.

Since then, however, most signs point to a resilient albeit slow economy, driven by steady hiring, ample job vacancies and low unemployment. Wednesday’s government report showed that the recovery in growth in the July-September period was led by solid gains in exports and stronger-than-expected consumer spending.

“Despite higher borrowing costs and prices, household spending – the engine of the economy – appears to be holding up, which is a positive development for the near-term outlook,” said Rubeela Farooqi, an economist in chief at High Frequency Economics.

This was the second of three estimates the Commerce Department will provide on economic expansion in the third quarter. In its initial estimate, the ministry estimated that the economy grew at an annual rate of 2.6% last quarter.

Economists expect the economy to post a modest 1% annualized growth from October to December, according to a survey of forecasters conducted by the Federal Reserve Bank of Philadelphia. The country’s manufacturing sector is slowing despite a loosening of supply chains that have been on hold since the economy began to rebound from the pandemic recession two years ago. And inflation threatens to weaken the crucial holiday shopping season. Retailers say inflation-weary shoppers are shopping cautiously, with many looking for the best bargains.

But a recession, if likely mild, is widely expected in 2023 as the Federal Reserve tries to tame the worst inflation episode in four decades by aggressively raising interest rates. The Fed has raised its short-term policy rate six times this year, including four straight hikes of three-quarters of a percentage point. The central bank is expected to announce an additional half-point increase in its key rate at its next meeting in mid-December.

Since the Fed’s benchmark rate influences many personal and business loans, its series of hikes has made most loans across the economy significantly more expensive. This has been especially true for mortgage rates, which have proven devastating for the US housing market. With mortgage rates doubling over the past year, housing investment fell from July to September at an annual rate of 26.8%, according to Wednesday’s GDP report.

Chairman Jerome Powell stressed that the Fed will do whatever it takes to rein in surges in consumer prices, which climbed 7.7% in October from a year earlier – a slowdown from a year-over-year high of 9.1% in June but still well above the Fed’s 2% target.

Economists had ignored the GDP contraction in the first half of the year because it did not reflect any major fundamental weakness in the economy. Instead, it was caused primarily by an influx of imports and a reduction in business inventories.

In the meantime, the labor market has remained surprisingly sustainable. Employers have added a healthy average of 407,000 jobs per month so far in 2022. And according to a survey by data firm FactSet, economists predict the country has gained an additional 200,000 jobs this month. The government will release the November jobs report on Friday.

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