Growth in gross domestic product – the economy’s output of goods and services – marked a return to growth after successive declines in the January-March and April-June periods.
Still, many economists expect the economy to slow and possibly slip into recession next year, under pressure from the Federal Reserve to hike higher interest rates to combat inflation, which earlier this year reached its highest level in the 1980s. reached a height not seen since the beginning of the decade.
Strong exports and healthy consumer spending were driving Q3 growth.
Investment in housing fell by an annual rate of 27.1%, hit by higher mortgage rates resulting from the Fed’s decision to raise its benchmark rate seven times this year.
Thursday’s GDP report was the Commerce Department’s third and final look at the July-September quarter. The first look at the fourth quarter comes out on 26 January. Forecasters polled by the Federal Reserve Bank of Philadelphia expect the economy to grow again in the last three months of the year – but at a slower, 1% annual rate.
In its previous estimate of third-quarter growth released on November 30, the Commerce Department pegged July-September growth at an annualized rate of 2.9%. Strong growth in consumer spending was behind Thursday’s upgrade to 3.2%, with the November estimate revised up to a 2.3% annual rate from 1.7%.
“Despite the rapid rise in interest rates, the economy is growing and importantly, households are still spending,” Rubella Farooqi, chief US economist at High Frequency Economics, said in a research note. “However, looking ahead, into 2023, we expect a slower growth trajectory.”
Inflation, which has not been a serious problem for four decades, returns in the spring of 2021. It began with an unexpectedly strong recovery from the 2020 coronavirus recession, driven largely by government stimulus. The Fed was slow to recognize the seriousness of the inflation problem and began raising rates aggressively only in March.
The job market remains entirely flexible, putting upward pressure on wages and prices. Employers added 392,000 jobs a month so far this year, and unemployment stood at 3.7%, the lowest in a half-century.