GDP report shows US economy grew a strong 4.9% in latest quarter
The US economy grew a stellar 4.9% from July through September, driven by robust consumer spending despite the Federal Reserve’s efforts to slow the economy with high-interest rates.
Thursday’s estimate from the Commerce Department showed that the nation’s gross domestic product — the broadest gauge of the economy’s total output of goods and services — was the fastest quarterly advance in nearly two years.
Last quarter’s robust GDP growth was far above the 2.1% growth rate in the April-to-June quarter.
Despite inflation, the Commerce Department reported that Americans drove the economy by stepping up their spending, splashing out on everything from movies and Taylor Swift concert tickets to restaurant meals.
However, the economy is expected to experience a steady slowdown in the current October-to-December quarter and into early 2024, especially if the Fed implements another interest rate hike and the housing market remains sluggish.
A recent survey by CNBC-Morning Consult showed just that, with more than three-quarters of respondents, 76%, saying they plan to be frugal through the holidays.
Of the 4,403 US adults polled last month, 62% said they plan on budgeting “sometimes” or “more often” in the upcoming six months, CNBC found — during retailers’ all-important holiday shopping season.
On top of sky-high borrowing rates currently plaguing the housing market — the average long-term rate hit 8% for the first time since 2000 last week, per Mortgage Daily News — some 30 million Americans began repaying student loans, which could slow their ability to spend in the fourth quarter.
Those loan repayments had been suspended since the pandemic first struck three years ago.
Brisk consumer spending typically leads companies — those that sell physical goods as well as those, like restaurants and entertainment venues, in the economy’s vast service sector — to raise prices, thereby fueling inflation.
Fed officials have acknowledged the pickup in growth, which could potentially undercut their efforts to fight inflation, which rose 3.7% in September.
Last month’s advance was more than economists expected — and a sharp decline from June 2022’s four-decade high of 9.1% — though it’s still well above central bankers’ 2% goal.
A blockbuster September employment report revealed that the US economy added a whopping 336,000 jobs last month — an unexpected surge that contradicts the notion the Fed may tamp down its aggressive tightening regime.
However, it still remains unclear whether the latest GDP figure will have much impact on the Fed’s upcoming Nov. 1 decision on interest rates, which officials have suggested may increase one more time ahead of the new year.
Fed Chari Jerome Powell said in a discussion at the Economic Club of New York last week: “We certainly have a very resilient economy on our hands.”
“Many forecasts called for the US economy to be in recession this year. Not only has that not happened; growth is now running for this year above its longer-run trend. So that’s been a surprise,” he added.
If those trends continue, it could allow the Fed to achieve a highly sought-after “soft landing,” in which the central bank would manage to slow inflation to its 2% target without causing a deep recession.
At the same time, Powell has suggested that if the economy keeps growing robustly, the Fed might have to raise rates further. Its benchmark short-term rate — which affects the rates on many consumer and business loans — currently sits between 5.25% and 5.5%, a 22-year high.
Last month, Fed officials unanimously decided to hold the record-high rate steady for the second time in six policy meetings so far this year.
“Additional evidence of persistently above-trend growth could put further progress on inflation at risk and could warrant further tightening of monetary policy,” Powell said last week.
With Post wires.
