US Economy Grows by 49% in the Third Quarter, Slightly Lower than Earlier Estimates
US economic growth in the third quarter was slightly weaker than expected but still robust, hinting at potential lower interest rates in the future The solid performance reflects the sheer strength of America's economy during the summer
In the third quarter, US economic growth was revised slightly lower from previous reports, but it remains strong, highlighting the resilience of the American economy over the summer. According to the Commerce Department, the Gross Domestic Product expanded at an annualized 4.9% rate from July to September, down from the previously reported 5.2% in the second estimate.
The third quarter saw the strongest growth in almost two years, driven by increased spending on live concerts, movies, and consumer goods. While the US economy has cooled from its earlier rapid pace, both employment and consumer spending continue to show strength.
On Wednesday, December 21, 2022, commuters were seen at the Times Square-42nd Street subway station in New York, US. The Metropolitan Transportation Authority of New York, the largest US transit system, has approved a $19.2 billion operating budget for 2023. This budget includes a 5.5% fare increase, spending reductions, and decreased service on select subway lines. The photograph was taken by Jeenah Moon/Bloomberg.
The year 2022 saw the lowest unemployment rate ever recorded. The final estimate from the department considered lower consumer spending, inventory investments, and exports, while increasing government spending and business investments. The revision also resulted in a decrease in consumer spending from 3.6% to 3.1%, which makes up two-thirds of economic output.
Lower interest rates on the horizon
There is a positive sentiment among investors that the Federal Reserve will likely reduce interest rates in the next few months, despite recent resistance from officials. There is also a belief that the economy is currently experiencing a gentle landing, where inflation reaches the Fed's 2% target without a significant increase in unemployment.
Rate cuts are currently the hot topic of conversation. According to the Feds latest economic projections, central bank officials have indicated three rate cuts for next year.
Gas prices have come down in recent months
Aaron M. Sprecher/AP
Americans are becoming less concerned about a recession.
Both investors and the Federal Reserve are feeling relieved as inflation shows signs of easing once again, following a brief uptick earlier in 2023. The Consumer Price Index, a key indicator, increased by 3.1% in November from a year ago, a slight decrease from the 3.2% rise in October. This comes after a spike to 3.7% during the summer, driven by higher energy prices, which have since declined significantly.
The November report on household spending, income, and the Federal Reserve's preferred inflation measure will be released by the Commerce Department on Friday. The timing of rate cuts remains uncertain, with futures suggesting that the first cut may occur in March. However, Fed officials are tempering market expectations with a reality check.
New York Fed President John Williams recently clarified that the discussion is not focused on rate cuts. Meanwhile, Chicago Fed President Austan Goolsbee emphasized on CBS Sunday that inflation is still above the target and cautioned against premature assumptions.
A solid US economy⦠for now
The broader economy has remained remarkably resilient, and while it has softened since the summer, it hasnt fallen off a cliff.
Some believe that the strong performance of the American economy may have made it more challenging for the Federal Reserve to reduce inflation. However, price increases continued to slow down after the summer. The Atlanta Fed is predicting that the GDP for the fourth quarter will be 2.7%, which is a slower rate of growth than the previous three months, but still robust.
The Federal Reserve has recently increased interest rates to their highest point in more than twenty years in an effort to control inflation. Despite the concern of numerous economists that the central bank's strong measures would lead to an economic downturn, that scenario has not materialized.
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America may have done the impossible: Avoid a recession
The US economy's ability to withstand the highest interest rates in 22 years has raised optimism that the Fed may be close to achieving the challenging task of reducing inflation without increasing unemployment. "A surprisingly smooth transition for the US economy appears more probable next year," noted John Min, chief economist at Monex USA.
Unemployment assistance applications, which usually indicate changes in the job market, continue to be minimal. Although jobless claims increased last week, they were lower than what economists had predicted.
The Labor Department reported 205,000 initial claims for unemployment insurance for the week ending on December 16. This is a 2,000 increase from the previous week's upwardly revised total of 203,000.
However, there are still numerous economic challenges to overcome. Many Americans are increasing their debt as they use up their savings from the pandemic. Additionally, almost nine million Americans failed to make their initial student loan payment after the pause related to the pandemic came to an end this autumn.
