Economic growth rebounded over the summer, the latest government data shows, but slowing consumer spending and a rapidly weakening housing market mean the report will do little to ease fears of a looming recession.
Gross domestic product, adjusted for inflation, rose 0.6% in the third quarter, a 2.6% annual rate of growth, the Commerce Department said Thursday. It was the first increase after two consecutive quarterly contractions.
But the third-quarter figures were skewed by the international trade component, which often exhibits big swings from one period to the next. Economists tend to focus on less volatile components, which have showed the recovery steadily losing momentum as the year has progressed.
“Ignore the headline number — growth rates are slowing,” said Michael Gapen, chief U.S. economist for Bank of America. “It wouldn’t take much further slowing from here to tip the economy into a recession.”
Consumer spending, the bedrock of the U.S. economy, rose just 0.4% in the third quarter, down from a 0.5% increase in the quarter before, as rapid inflation ate away at households’ spending power. Spending on goods fell for the third consecutive quarter, while spending on services slowed but remained positive.
The slowdown in spending will be welcome news for policymakers at the Federal Reserve, who have been trying to cool off consumer demand to tamp down inflation. The central bank has raised interest rates aggressively in recent months, and is expected to announce another big increase at its meeting next week.
But forecasters and investors have become increasingly concerned that the Fed will go too far in its efforts to slow the economy and will end up causing a recession. Consumer spending has continued to increase despite higher interest rates and rising prices, but it is unclear how long that can last.
“‘Borrowed time’ is how I would describe the consumer right now,” said Tim Quinlan, senior economist at Wells Fargo. “Credit card borrowing is up, saving is down, our costs are rising faster than our paychecks are.”
The impact of rising interest rates is clear in the housing market, where home building and sales have both slowed sharply in recent months. The housing sector shrank 7.4% in the third quarter, subtracting 1.4 percentage points from the annualized growth rate in overall GDP. Businesses also cut investments in commercial and industrial buildings.
The third quarter was in some sense a mirror image of the first quarter, when GDP shrank but consumer spending was strong. In both cases, the swings were driven by international trade. Imports — which don’t count toward domestic production figures — soared early this year as the strong economic recovery led Americans to buy more goods from overseas. Exports slumped as the rest of the world recovered more slowly from the pandemic.
Both trends have begun to reverse as American consumers have shifted more of their spending toward services and away from imported goods, and as foreign demand for American-made goods has recovered. Supply-chain disruptions have added to the volatility, leading to big swings in the data from quarter to quarter.
Few economists expect the strong trade figures from the third quarter to continue, especially because the strong dollar will make American goods less attractive overseas.
c.2022 The New York Times Company
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