EconomyThe US resumes economic growth in the third quarter

The US resumes economic growth in the third quarter

The US economy returned to growth in the third quarter of 2022 after contracting in the previous two quarters, giving President Joe Biden some breathing space ahead of the midterm legislative elections, although a recession could only be a matter of time.

During the three months from July to September, the gross domestic product (GDP) of the United States grew 2.6% at an annual rate (the 12-month projection if conditions were maintained at the time of measurement), according to the first estimate of the Department of Trade published this Thursday.

The world’s largest economy is expanding for the first time since early 2022, and the rebound is stronger than anticipated. Analysts expected GDP growth of 2.3% in the third quarter of the year.

US GDP contracted in the first two quarters of the year, falling 1.6% and then 0.6% over the immediately preceding quarter, but not entering a recession according to the Biden administration and many economists.

While two consecutive quarters of falling GDP corresponds to the commonly accepted definition of a recession, the strength of the labor market in particular means that the world’s largest economy does not fall into that category.

The calculation of GDP at an annual rate, a measure favored by the United States, compares with the previous quarter and then projects the evolution throughout the year.

Growth is 0.6% if you simply compare it to the previous quarter, as other advanced economies do.

Balm for Biden

President Joe Biden used Thursday’s data to praise the strength of the US economic recovery.

“For months, the doomsayers argued that the United States economy was in recession, and the Republicans in Congress encouraged” that idea, said the president, campaigning for the November 8 legislative elections in which his Democratic Party is playing for control congressional.

“But today we had more evidence that our economic recovery continues to advance,” added the president.

These data show “positive dynamics in household spending, a rebound in business investment and persistent weakness in real estate investment,” Rubeela Farooqi, an economist at HFE, said in a note.

“Going forward, risks are on the downside, particularly for consumption, as families continue to struggle with high prices and a likely slowdown in job growth” in the country, it added.

“The strength of the dollar and the weakness of global growth will limit exports,” said Ian Shepherdson, an economist at Pantheon Macroeconomics.

Recession risks in 2023

The uptick is good news for Biden ahead of the election.

But the risks of recession persist for the coming months. Biden himself had mentioned earlier in the month the possibility of a “very mild recession.”

The central theme for the US economy is inflation, which remains near its highest level in 40 years, at 8.2% in the 12 months to September, and erodes the purchasing power of households. Especially since the remedy to this rise in prices is to slow down the economy by increasing interest rates.

Mortgage or consumer loans now cost much more than before. Less consumption and less investment should cool down an overheated economy.

The Federal Reserve (Fed), the US central bank, has the cards in hand to fight inflation, and is gradually raising its interest rates, in order to encourage commercial banks to do the same when granting loans.

After four raises already, he should continue this momentum at his next meeting on Tuesday and Wednesday of next week.

And the slowdown could be global as inflation is high in many regions. Several developed countries could enter a recession in 2023, such as Germany and Italy, the International Monetary Fund (IMF) recently warned.

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