Sun. Nov 27th, 2022
Latest GDP report shows the US economy bounced back last quarter after shrinking in the first half of the year

CNN Enterprise

The US economic system grew final quarter, bouncing again after shrinking within the first half of the yr — however there are indications that shopper spending, which powers the US economic system, is beginning to soften.

Gross home product — the broadest measure of financial exercise — rose by an annualized price of two.6% through the third quarter, in line with preliminary estimates launched Thursday by the Bureau of Financial Evaluation. That’s a turnaround from a decline of 1.6% within the first quarter of the yr and adverse 0.6% within the second.

Economists had projected third-quarter progress of two.4%, in line with consensus estimates on Refinitiv.

President Joe Biden on Thursday hailed the GDP rebound, describing the report as “additional proof that our financial restoration is constant to energy ahead.”

Whereas the financial progress underscores that the USA shouldn’t be presently in a recession, economists cautioned that the most recent GDP report doesn’t imply one isn’t imminent.

A lot of the positive aspects have been fueled by a rebalancing of imports and exports, with fewer international items shipped to the USA as customers shifted their consideration away from pandemic-fueled spending on sofas, bikes and different sturdy items and turned to journey and eating out.

Shopper spending grew by 1.4% on an annualized foundation which, although higher than anticipated, marks a slowdown from the primary two quarters.

“Excluding the extra risky classes, the trajectory for progress appears weak,” Jeffrey Roach, chief economist for LPL Monetary, stated in an announcement. “A deteriorating housing market and nagging inflation, together with an aggressive Federal Reserve, put the economic system on not sure footing for 2023.”

Whereas back-to-back quarterly contractions like we noticed within the first half of the yr meet one technical definition of a recession, economists notice {that a} true recession is a deeper, longer, broader decline in financial exercise. Throughout the first two quarters of this yr, the labor market was scorching, shopper spending was rising and enterprise funding remained robust.

However, simply because the decline in GDP within the first half of the yr didn’t appropriately mirror that sturdy exercise, the surge within the third quarter masks a possible slowdown.

The most important variables for the previous 9 months have been web exports and inventories, two classes that ordinarily don’t have such an outsized affect.

The Port of Los Angeles is the nation's gateway for international commerce and is the busiest seaport in the Western hemisphere.

“It’s the mirror impact of what we noticed in Q1 and Q2,” stated Andrew Patterson, senior worldwide economist at Vanguard.

Within the first six months of the yr, the commerce deficit widened as reliance on imports grew as a result of US manufacturing couldn’t meet the surging demand for items, and companies’ stock ranges have been negatively impacted by snarls within the provide chain.

Nevertheless, within the third quarter, commerce and inventories improved: Provide chain points are fading and the commerce hole has narrowed as shopper spending has shifted towards companies and away from items, resulting in fewer imports.

The most recent report, which confirmed a decline in imports coupled with decreases in housing investments and a slowdown in shopper spending, is a mirrored image of a broader easing of demand, Patterson stated.

That’s one thing the Fed has been hoping to see because it enacted a sequence of blockbuster price hikes aimed toward flattening traditionally excessive inflation.

“That is one other signal that Fed coverage is having the meant affect,” he stated.

Regardless of the swing within the headline GDP, situations on the bottom for customers haven’t modified a lot, and issues for an financial downturn stay.

“I do suppose there’s roughly a 50-50 likelihood of recession in 2023,” stated Gus Faucher, senior vp and chief economist on the PNC Monetary Providers Group. “We’re beginning to see job progress gradual; housing is changing into extra of a drag; shopper spending progress, though that’s holding up, can also be slowing; and there’s a possible that as rates of interest transfer even greater by means of the remainder of this yr, that we might see a recession a while subsequent yr.”

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