The U.S. economy grew 5.2% in the third quarter, with higher interest rates eroding momentum. In the third quarter, the United States economy expanded at a quicker rate than was previously believed. This was because firms constructed additional warehouses and stockpiled mechanical equipment. However, this momentum has weakened as rising borrowing prices hurt hiring and expenditure.

However, the growth rate, which was the fastest in nearly two years, most certainly inflated the state of the economy during the most recent quarter. Economic activity rose at a speed considered modest when viewed from the perspective of income. At the same time, the report that the Department of Commerce released on Wednesday suggested that the economy continues to expand despite the persistent worries of a recession that have been present since the latter half of 2022.

Christopher Rupkey, the chief economist at FWDBONDS in New York, stated that there is no indication that the economy is deteriorating in the data released today; nonetheless, growth is continuing to slow down. “There’s simply not as much wind in the economy’s sails in the final quarter this year.”

In its second estimate of GDP for the third quarter, the Bureau of Economic Analysis (BEA) of the Department of Commerce revealed that the annualized growth rate for gross domestic product grew to 5.2% for the most recent quarter. This figure represents an increase from the 4.9% pace that was previously reported. Ever since the fourth quarter of 2021, this has been the quickest expansion ever since.

In a poll conducted by Reuters, economists anticipated that the GDP growth rate would be revised up to 5%. The economy expanded at a rate far higher than what officials from the Federal Reserve consider to be the non-inflationary growth rate, which is around 1.8%. The economy grew at a rate of 2.1% during the quarter from April to June.

The upward revision to growth was a reflection of improvements made by businesses about their investments in buildings, namely warehouses and healthcare facilities. There was also an increase in the amount of money spent by state and municipal governments. Additionally, residential investment increased due to the construction of additional single-family houses, contributing to the discontinuation of nine consecutive quarters of contraction.

Because wholesalers accumulated more mechanical equipment, private inventory investment was more than first expected. The increase in GDP growth attributed to inventory investment was 1.40 percentage points, which is not the 1.32 percentage points estimated the previous month.

However, the pace of increase in consumer spending, which accounts for more than two-thirds of the economic activity in the United States, was reduced to a substantial rate of 3.6%. This decrease from the previously expected growth rate of 4.0 percent was due to reductions in expenditures on financial services, insurance, and used light vehicles. These reductions are presumably the result of shortages created by the United Auto Workers strike that began and concluded not too long ago.

Wall Street’s stock market was trading at a higher level. When measured against a basket of currencies, the dollar remained stable. The price of U.S. Treasury bonds went up.

DIFFERENT DETAILS

Earnings after taxes, excluding inventory valuation and capital consumption adjustment, which are equivalent to earnings for the S&P 500, climbed by $126.2 billion, equivalent to a revenue growth rate of 4.3%. During the second quarter, business profits increased at a pace of 0.8%. The rise in earnings was observed among domestic financial and non-financial firms and corporations originating from other parts of the world.

Taking into account the rise in salaries, the personal income was found to be greater than what was first calculated. The rate of savings was increased from 3.8% to 4.0 percent. Because of higher salaries, the economy expanded at a pace of 1.5% during the most recent quarter, which was the most robust growth rate in a year when viewed from the perspective of income.

During the second quarter, there was a 0.5% growth in the United States’ gross domestic product (GDI). On the other hand, gross domestic product (GDI) fell at a rate of 0.2% year-on-year, marking the first decrease in GDP in three years.

The only occasion that the economy, as measured by incomes, has seen a decrease at this rate yet was not in a recession occurred during the third quarter of 2007. Conrad DeQuadros, a senior economic advisor with Brean Capital in New York, stated that the beginning of a recession occurred during the subsequent quarter.

Both GDP and GDI should be equal in theory, but in fact, they are not the same since they are calculated using distinct data sources that are generally independent. After shrinking when the BEA applied its yearly benchmark adjustments in September, the gap between GDI and GDP has re-widened. This comes after the gap had previously narrowed.

From July to September, the average gross domestic product and gross domestic investment, also known as gross domestic output and believed to be a more accurate indicator of economic activity, expanded at a rate of 3.3%. This is a faster growth rate than the 1.3% growth pace in the second quarter.

However, this appears to be a thing of the past, as economic activity appears to have slowed down dramatically at the beginning of the fourth quarter. In October, retail sales dropped for the first time in seven months, marking the beginning of a downward trend. The unemployment rate reached a nearly two-year high of 3.9% last month, while job growth slowed considerably during the same month.

The other statistics from the Census Bureau showed that the goods trade deficit increased by 3.4% to $89.8 billion in October; even this data further supported the moderate growth predictions. This indicated that trade may be a factor that slows down GDP development this quarter after having been a neutral factor from April to June. This resulted in a decrease in wholesale inventories, but the supplies at retailers remained steady.

From the beginning of October to the middle of November, the Federal Reserve released a third report revealing that economic activity had slowed. The study stated that “four districts reported modest growth,” “two districts indicated conditions were flat to slightly down,” and “six districts noted slight declines in activity.”

As a result of the slowdown in demand, there is a growing sense of confidence that the United States Federal Reserve will probably stop rising interest rates during this cycle. Financial markets are even predicting a rate decrease in the middle of 2024. A total of 525 basis points have been added to the benchmark overnight interest rate by the Federal Reserve since March 2022, bringing it to the current range of 5.25%–5.50%.

The Gross Domestic Product data also reaffirmed that inflation was decreasing, with minor downward adjustments to metrics that the Federal Reserve will monitor for monetary policy.

Jeffrey Roach, the chief economist of LPL Financial in Charlotte, North Carolina, said that the Federal Reserve may find itself in a favorable situation. Even though inflation is declining, consumers are still spending, albeit at a more leisurely rate. The Federal Reserve may stop its push to raise interest rates without causing significant harm to the economy.