US economy returned to growth last quarter, expanding 2.6% – WISH-TV | Indianapolis News | Indiana Weather
WASHINGTON (AP) – The US economy grew at a better-than-expected 2.6% annual rate from July to September, weathering two consecutive quarters of economic contraction and weathering punishingly high inflation and interest rates.
The Commerce Department’s estimate on Thursday showed the country’s gross domestic product — the broadest measure of economic output — grew in the third quarter after contracting in the first half of 2022. Stronger exports and resilient consumer spending, supported by a healthy labor market, helped restore growth in the world’s largest economy.
Consumer spending, which accounts for about 70% of US economic activity, rose at a 1.4% annual rate, compared with a 2% rate from April to June. Exports, which surged 14.4% annually, also fueled growth in the most recent quarter.
However, home investment has plunged 26% annually, hurt by rising mortgage rates as the Federal Reserve raises borrowing costs to fight chronic inflation.
The prospects for the economy as a whole have clouded over. The Fed has hiked rates five times this year and will do so again next week and in December. Chairman Jerome Powell has warned that rate hikes will bring the Fed “pain” in the form of higher unemployment and a possible recession.
The administration’s latest GDP report comes as Americans, worried about inflation and the risk of a recession, have started voting in the midterm elections that will determine whether President Joe Biden’s Democratic Party retains control of Congress. Inflation has become a defining issue in Republican attacks on Democrat leadership of the economy.
With inflation still near a 40-year high, steady price spikes are putting pressure on households across the country. At the same time, rising interest rates have derailed the real estate market and are likely to do more damage over time. The prospects for the global economy are also clouding over the longer Russia’s war against Ukraine drags on.
Last quarter’s US economic growth reversed annual declines of 1.6% in January-March and 0.6% in April-June. Consecutive quarters of contraction is an informal definition of a recession. But most economists have said they believe the economy has avoided a recession, citing the still-resilient job market and steady consumer spending. However, most of them have expressed concerns that a recession is likely next year as the Fed steadily tightens credit.
Preston Caldwell, chief of US economics at financial services firm Morningstar, noted that the economy’s slowdown in the first half of the year was largely caused by factors that didn’t reflect underlying health, and therefore “very likely didn’t represent a real economy slowing down.” He pointed to a decline in corporate inventories, for example, a cyclical event that tends to reverse over time.
Higher borrowing costs have particularly weakened the home market. The average interest rate on a 30-year fixed-rate mortgage, which was just 3.09% a year ago, is approaching 7%. Existing home sales have declined for eight straight months. The construction of new homes fell by almost 8% compared to the previous year.
Nevertheless, the economy retains its strengths. One of them is the vital labor market. Employers added an average of 420,000 new jobs per month this year, making 2022 the second-best year for job creation (behind 2021) on Labor Department records since 1940. The unemployment rate was 3.5% last month, a half-century low.
However, recruitment has slowed. In September, the economy added 263,000 jobs – solid but the lowest total since April 2021.
International events add to the concerns. Russia’s invasion of Ukraine has disrupted trade and pushed up energy and food prices, causing a crisis for poor countries. The International Monetary Fund this month downgraded its outlook for the global economy in 2023, citing the war.
