US economy delivers blockbuster performance in third quarter

<br /> US economy delivers blockbuster performance in third quarter <br />

Washington, Oct. 26 (BNA): The U.S. economy grew almost 5% in the third quarter, again defying dire warnings of a recession, as higher wages from a tight labor market helped to fuel consumer spending and businesses restocked at a brisk clip to meet the strong demand.


The fastest growth pace in nearly two years reported by the Commerce Department’s Bureau of Economic Analysis on Thursday in its advance estimate of third-quarter gross domestic product was also spurred by a rebound in residential investment after contracting for nine straight quarters, according to Reuters.


Government spending picked up. But business investment dipped for the first time in two years as outlays on equipment like computers declined and the boost faded from the construction of factories related to a campaign by President Joe Biden’s administration to encourage more semiconductor manufacturing in the United States.


Though the blockbuster performance over the summer is likely not sustainable, it showcased the economy’s stamina despite aggressive interest rate increases from the Federal Reserve. Growth could slow in the fourth quarter because of the United Auto Workers strikes, the resumption of student loan repayments by millions of Americans and the lagged effects of the rate hikes.


The report also showed underlying inflation subsiding considerably last quarter. Most economists have revised their forecasts and now believe the Fed can engineer a “soft-landing” for the economy, citing expectations that the July-September period will show a continuation of second-quarter strength in worker productivity and moderation in unit labor costs.


“We’ve seen for a period of time now a post pandemic induced negative bias about an imminent recession and persistent inflation,” said Brian Bethune, an economics professor at Boston College. “But not only is the economy surprisingly resilient, we also got productivity-driven growth for two consecutive quarters in 2023, meaning the business cycle still looks very solid.”


Gross domestic product increased at a 4.9% annualized rate last quarter, the fastest since the fourth quarter of 2021. Economists polled by Reuters had forecast GDP rising at a 4.3% rate. The economy grew at a 2.1% pace in the April-June quarter and is expanding at a pace well above what Fed officials regard as the non-inflationary growth rate of around 1.8%.


Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, accelerated at a 4.0% rate after only rising at a 0.8% pace in the second quarter. It added 2.69 percentage points to GDP growth, and was driven by spending on both goods and services.


Though wage growth has slowed, it is rising a bit faster than inflation, lifting households’ purchasing power.


The increase in wages last quarter was partially offset by a rise in personal taxes, resulting in income at the disposal of households after taxes falling at a 1.0% pace. That led to consumers tapping their savings to fund some of their spending. The saving rate dropped to 3.8% from 5.2% in the second quarter.


Stocks on Wall Street fell. The dollar rose against a basket of currencies. U.S. Treasury yields dipped.



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