U.S. Economy Grew 2.6% in Third Quarter, GDP Report Shows

The US economy grew in the third quarter but showed signs of a broad-based recession as consumer and business spending faltered amid high inflation and rising interest rates.

Gross domestic product — a measure of goods and services produced across the country — rose an annualized 2.6 percent in the third quarter after a decline in the first half of the year, the Commerce Department said Thursday.

Trade was the biggest contributor to the 3Q turnover, as the US exported more oil and natural gas as the war in Ukraine disrupted supplies to Europe. Consumer spending, the main driver of the economy, rose, but at a slower pace than in the previous quarter.

However, businesses cut spending on buildings, and housing investment fell 26.4% year-on-year, the department said.

Stocks were mixed after the GDP release and earnings announcement. Treasury yields fell.

Economic uncertainty is rising, with many economists concerned about the possibility of a recession in the next 12 months. They expect the Federal Reserve’s efforts to combat high inflation by raising interest rates to further weigh on the economy.

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“The overall health of the economy is getting worse, and a lot of that is just the effect of higher inflation and higher interest rates,” said Richard F. Moody, chief economist at Regions Financial. corp.

“I don’t think we’ve seen the full impact of the higher rates on the economy, so we have pretty low expectations for the next several quarters.”

Investment in growth

Growth in the third quarter was driven by net exports and a narrowing of the trade deficit, while consumer investment was lower than in the previous quarter.

Investments (percentage of points):

Investments (percentage of points):

Investments (percentage of points):

Investments (percentage of points):

Investments (percentage of points):

The US is not the only part of the world facing economic problems. The European Central Bank on Thursday raised its benchmark interest rate to 1.5% from 0.75% as it seeks to rein in inflation in a region close to recession.

One of the sectors most sensitive to interest rates – housing – is showing signs of pain. Home sales suffered their longest streak of declines in 15 years, and the average rate on a 30-year fixed-rate mortgage eclipsed 7% on Thursday for the first time in more than 20 years.

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Economists do not expect export growth to continue in the third quarter, given the strength of the dollar and the weakening of the global economy. Many point to final sales to private domestic buyers, a measure of consumer and business spending that measures underlying demand in the economy, as a sign of a broader economic downturn. It rose at an annual rate of 0.1% in the third quarter after rising 0.5% in the 2nd quarter and rising 2.1% in the 1st quarter.

Part of the economic slowdown this year reflects a return to a more normal pace of growth after the economy grew at an unusually fast 5.7% last year as it recovered from earlier disruptions from the pandemic.

The trajectory of the economy largely depends on how consumers fare in the coming months.

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High inflation and rising interest rates have not weakened the health of American consumers much, Bank of America Corp. said in a recent earnings call. CEO Brian Moynihan. The company’s data shows that consumers continue to spend more. They also have more money in the bank than before the pandemic.

Consumers benefit from a tight labor market. Employers are holding on to their workers, and jobless claims remained low last week. Many companies are also raising wages to combat the shortage of workers.

“Wage growth has picked up, which is good for consumers and that helps their balance sheets,” said Mark Begor, CEO of credit reporting company Equifax. Inc.

this month on the earnings call. “Obviously inflation is a bad guy and it hurts a lot of consumers. But even with inflation, consumers are still spending, traveling and doing everything they do in their lives.

However, consumers may begin to break in. Many are tapping into pandemic savings and turning more to credit cards to finance spending, said Cathy Bostianczyk, chief U.S. economist at Oxford Economics.

Both the Consumer Sentiment Index and the Consumer Confidence Index attempt to measure the same thing: consumer sentiment. WSJ explains why the Federal Reserve is keeping a close eye on consumer confidence in 2022. Illustration: Adele Morgan

But with higher interest rates, “consumers can really rely on their credit cards,” she said.

Some businesses — particularly industries that benefited from the takeover of consumer goods earlier in the pandemic — are seeing consumer pullbacks. Sales are down about 25% so far this year from the same period in 2021 at Altus Brands LLC, said Gary Lemansky of Grawn, Mich. owner of a company that manufactures and sells accessories for hunting, shooting and outdoor recreation.

Many of the factors that drove sales growth in 2020 and 2021, such as consumers’ extra cash from government stimulus, their time at home to go out in the woods, and their inability to spend money on services, including travel, have since disappeared. , he said.

Inflation is causing many consumers to cut back on discretionary purchases, which include products sold by Altus, such as electronic earmuffs for hearing protection, which can cost between $200 and $250, Lemansky said.

“I talk to a lot of people and you just hear it over and over again: It’s harder to make ends meet,” he said.

Many tech companies are feeling the effects of the economic slowdown. Facebook Parent Meta Platforms Inc.

posted its second consecutive drop in revenue as the social media company grapples with tough macroeconomic conditions affecting advertiser spending. Microsoft corp.

said it expects a sharp decline in PC sales and a strong dollar to continue to weigh on growth.

The U.S. economy has been rocked by a string of interest rate hikes, and more are forecast to follow. The WSJ breaks down the numbers hitting Americans’ wallets this year and beyond. Photo: Elise Amendola/Associated Press

Inflation reduces the appetite of some consumers for large purchases. A majority of Americans think it’s a bad time to buy a car or large household items like furniture, refrigerators or stoves, and many attribute their opinion to high prices, according to a University of Michigan poll.

CarMax Inc.,

the used car retailer reported a more than 50% drop in profits in its most recent quarter as consumers were hit by tough economic conditions.

“This quarter reflects the widespread pressures facing the used car industry,” CEO William Nash said in an earnings call. Higher prices, rising interest rates and low consumer confidence “all led to a decline in used car sales in the market,” he said.

To type Sarah Chaney Cambon, email [email protected]

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