Third-quarter GDP growth revised up to 3.2% rate in sign of economic strength
Zachary Halaschak
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America’s gross domestic product grew at a seasonally adjusted 3.2% annual rate in the third quarter after declining in the first half of the year, the Bureau of Economic Analysis reported in a surprisingly encouraging third and final estimate.
The final estimate revised up economic growth from a previously estimated 2.9% rate, adjusted for inflation.
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The fact that GDP grew in the third quarter should temporarily allay fears that the country is in a recession after the first two quarters showed contraction. Consumer spending, in particular, has remained robust, even though households have been buffeted by inflation and the Federal Reserve’s campaign to raise interest rates.
But other details from the report were not as positive. Gross domestic income, which is an alternative measure of economic growth (that theoretically should be in sync with GDP), increased at just a 0.8% rate in the third quarter, indicating that the country’s underlying growth is not as strong as the headline numbers make it out to be.
Additionally, the report illustrates just how much the quickly slowing housing market is beginning to drag down the broader economy. Residential housing knocked a whopping 1.4 percentage points off the headline GDP number.
“If there is a recession coming right around the corner, the American consumer sure doesn’t know it. So far the Fed’s heavy-footed rate hikes are only hurting residential housing construction,” noted Christopher Rupkey, chief economist for FWDBONDS.
Two consecutive quarters of declining GDP commonly define a recession. And some, particularly opponents of President Joe Biden, were quick to declare that the United States was indeed in a recession in the first half of the year. Nevertheless, the labor market was red-hot, and the unemployment rate was at the historic lows it notched just before the pandemic took hold.
Despite the strong third-quarter GDP growth, most economists predict that a recession is coming down the pipeline, likely to hit the U.S. sometime next year as a result of the Fed’s aggressive interest rate hiking, which is designed to cool inflation but inevitably slows economic growth.
Last month’s consumer price index report found that inflation grew 7.1% in the 12 months ending in November. While the pace is a welcome improvement from previous months and comes as the central bank eases off the gas a bit, it remains much faster than is healthy.
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Although the unemployment rate has remained below 4% this year, it is expected to rise as the rate hikes begin to work their way through the economy.
After conducting a 50-basis-point rate hike in December, the Fed will meet again in late January to determine by how much to raise rates once again.