US economy likely returned to growth last quarter
By PAUL WISEMAN – AP business writer
WASHINGTON (AP) — The troubles have hardly gone away. Inflation, still near a 40-year high, is weighing on budgets. Rising interest rates have derailed the housing market and threaten to do more damage. And the outlook for the global economy is becoming bleaker as Russia’s war against Ukraine drags on.
But for now, the US economy is likely back on the growth path after contracting in each of the first two quarters of 2022.
At least, that’s what economists expect on Thursday, when the Commerce Department releases its first of three estimates of gross domestic product — the broadest measure of economic output — for the July-September period.
Economists polled by data firm FactSet have predicted that GDP grew by an average of 2% annually in the third quarter. That would reverse annual declines of 1.6% in January-March and 0.6% in April-June.
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Consecutive quarters of contraction is an informal definition of a recession. However, most economists believe the economy has so far avoided a recession, citing the still-resilient job market and steady consumer spending. However, most of them have expressed concern that a recession is likely next year as the Federal Reserve continues to raise interest rates to fight inflation.
Preston Caldwell, chief of US economics at financial services firm Morningstar, notes that much of the economy’s slowdown in the first half of the year was caused by factors that didn’t reflect underlying health, and therefore “very likely didn’t represent a real economic slowdown.” For example, he pointed to a decline in corporate inventories, a cyclical event that tends to reverse itself and generally does not reflect the state of the economy.
In contrast, consumer spending, boosted by a healthy labor market, and stronger US exports are likely to have put the world’s largest economy back on track for growth last quarter.
Thursday’s government report comes as Americans, concerned about high prices and recession risks, prepare to vote 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.
The risk of an economic downturn next year remains elevated as the Fed continues to hike rates aggressively to try to tame stubbornly high consumer prices. The central bank has raised its short-term interest rate five times this year and is expected to announce further hikes next week and again in December. Chairman Jerome Powell has bluntly warned that taming inflation will “bring some pain” – namely higher unemployment and possibly a recession.
Higher borrowing costs have already hit the domestic 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.
But 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.
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