The US economy recovered in the third quarter after lease in the first six months of this year, as the narrowing trade deficit masked weak 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 a 0.6% decline. in the second quarter of 2022 and a decline of 1.6% in the first three months of the year. of year.
The expansion in the third quarter was driven by a narrowing of the trade deficit, as falling consumer demand caused imports to fall while exports rose. That came despite a widening goods deficit in September as a strong US dollar hit exports. Consumer spending grew only 1.4%, much slower than in the previous period, indicating that the economy is starting to slow down.
Data released by the Department of Commerce on Thursday, with effect ending one debate raised over the summer whether the U.S. economy is already in recession, but that doesn’t dispel worries about where it will ultimately go with the positive steps the U.S. central bank is taking. present to quell rising inflation.
Two consecutive quarters of decline in GDP has long been considered a common criterion for a so-called “technical recession”. However, top policymakers in the Biden administration and the Federal Reserve pushed back against that framework decision, citing ample evidence that the economy is still standing.
The Official Recession Arbitrators, a group of economists at the Office of National Economic Research, describe a recession as “a significant decline in economic activity that spreads across the economy and for more than a few months”. They typically look at a range of metrics including monthly employment growth, consumer spending on goods and services, and industrial production.
The Fed is poised early next month to deliver a fourth straight 0.75 percentage point rate hike, which would lift their benchmark policy rate to a new target range from 3.75 percentage points. hundred to 4 percent. As recently as March, the federal funds rate hovered near 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 rate hikes, potentially as early as December, it is not expected to fully pivot away from tight monetary policy.
Last month, most officials thought lending rates would peak at 4.6%, but now investors expect it to close at 5% next year.
Given how big of an impact the Fed’s actions are expected to have on growth and the labor market, most economists now expect the unemployment rate to rise substantially above its current level. is currently 3.5% and the economy will slip into recession next year.
Top Officials in the Biden Administration maintain that the US economy is strong enough to avoid that outcome, citing the resilience of the labor market, but even Jay Powell, the Fed chair, concedes the odds have risen.
“Nobody knows if this process will lead to a recession or, if so, how severe it will be,” he said at his last press conference in September.