US GDP (Gross Domestic Product) rebounded more than expected in the third quarter, but this masked the real health of the economy, as aggressive interest rate hikes by the Federal Reserve ) limited consumer spending.
The US economy grew at an annualized rate of 2.6% in the quarter ended in September, the US Commerce Department said in a preliminary estimate on Thursday. The country broke a string of two consecutive quarterly declines in production, which had raised concerns that the economy was in a recession.
In the second quarter, GDP had contracted at a rate of 0.6% in the second quarter. Economists polled by Reuters had predicted growth to rebound at a rate of 2.4% in the July-September period. Estimates ranged from 0.8% to 3.7%.
While the economy may not be in recession, the risks of a slowdown have increased as the Fed bolsters interest rate hikes as it battles its highest inflation in 40 years. The US central bank raised its interest rate from near zero in March to the current range of 3.00% to 3.25%, the fastest pace of monetary policy tightening in a generation or more.
The report will have little impact on monetary policy, with Fed officials looking to September’s PCE inflation index data and third-quarter labor cost figures to be released on Friday ahead of the 1-2 monetary policy meeting. from November.
The trade deficit narrowed sharply in part because slowing demand lowered the import bill. Exports also increased for much of the last quarter. Sudden fluctuations in trade and inventories were behind the contraction in GDP in the first half of the year.
Growth in consumer spending, which accounts for more than two-thirds of US economic activity, slowed to 1.4% from the 2.0% pace of the April-June quarter.
Consumer spending is being supported by a strong labor market, which is pushing up wages. The Labor Department on Thursday reported a modest increase in the number of people filing new claims for unemployment benefits in the past week.
Initial claims for unemployment benefits rose by 3,000 to a seasonally adjusted 217,000 in the week ended Oct 22.
Biden says third-quarter US growth shows continued progress in economic recovery
US President Joe Biden said on Thursday that the country’s resumption of economic growth in the third quarter is evidence that the economic recovery “continues to advance”, and said his administration needed to do more to reduce prices for consumers.
“My administration has passed laws that will reduce prescription drug prices and health insurance amounts starting next year. We must do more,” Biden said in a statement.
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