The U.S. economy rose in the third quarter as a strong job market and falling inflation gave consumers confidence to spend more freely on goods and services.
Gross domestic product, the primary measure of economic output, grew at an annualized rate of 4.9 percent from July to September. Department of Commerce said Thursday. The pace exceeded forecasts and was the strongest showing since late 2021, defying forecasts of a slowdown fueled by Federal Reserve interest rate hikes.
The acceleration was made possible in part by lower inflation, which boosted purchasing power even as wage growth weakened, and a job market that showed renewed vigor in the past three months.
That’s a far cry from the recession many predicted at this time last year, when economists realized Americans had accumulated enough savings to power spending and the Fed made borrowing more expensive.
“There has been an enormous increase in wealth post-Covid,” said Elena Shulyatyeva, senior economist at BNP Paribas Bank, citing the latest Fed data showing average net worth rising 37 percent from 2019 to 2022. , not just two, but three and four.
Sectors that benefited from pandemic shopping trends, such as transportation and warehousing, spurred strong job growth in service industries such as hotels and restaurants. With layoffs still low, workers have little reason to stop making purchases, even if they use a credit card — an expensive option when interest rates climb high.
One beneficiary of those open pocket books is Amanda McClements, who owns Salt & Sundry, a home goods store in Washington, DC. Sales are up about 15 percent from last year and have finally surpassed 2019 levels.
“People can never get enough candles; It continues to be our best seller,” said McClements. They also do “post-pandemic entertaining, so we’re doing really well on glassware, tableware, beautiful linens.”
McClements said business wasn’t uniformly strong: His plant shop, Little Leaf, never recovered from the depths of the pandemic, and it closed this year. “We are experiencing a very uneven recovery,” he said.
While consumer spending drove much of the economic growth in the third quarter, other factors also contributed. Residential investment, for example, has been buoyed in the face of high interest rates: existing home owners have little incentive to sell, so only newly built homes are on the market.
“Higher mortgage rates will keep people in the sweet spot in the third quarter, as builders capitalize on existing supply shortages, and this shows an improvement from the previous quarter,” said Bernard Yaros, lead US economist at Oxford Economics.
Regeneration of growth will probably be short. Risks loom in the fourth quarter, including dwindling savings, resumption of forced student loan payments and the need to refinance corporate debt maturing at higher rates.
But for now, the U.S. is doing better than other major economies, in part because of its aggressive fiscal response to the pandemic and in part because it is more insulated from the impact of the Ukraine war on energy prices.
“We’re talking about the eurozone and the UK certainly being on the cusp of recession, if not already in recession,” said Andrew Hunter, deputy U.S. economist at Capital Economics, an analysis firm. “America is still a global outlier.”
Gina Smialek Contributed report.