WASHINGTON — The US economy, ignoring hyperinflation and rising interest rates, posted an unexpectedly strong 3.2% annual growth from July to September, the government reported on Thursday.
The increase in the gross domestic product, which is the economy’s production of goods and services, signaled a return to growth after the consecutive declines in the January-March and April-June periods.
Still, many economists expect the economy to slow down and possibly enter a recession next year, under pressure from higher interest rates designed by the Federal Reserve earlier this year to combat inflation, which has reached heights not seen since the early 1980s.
Third quarter growth was driven by strong exports and healthy consumer spending.
Housing investment fell 27.1% year-on-year, driven by higher mortgage rates, driven by the Fed’s decision to raise its benchmark rate seven times this year.
Thursday’s GDP report was the Commerce Department’s third and final look at the July-September quarter. The first look at the fourth quarter comes out on January 26. Forecasters polled by the Federal Reserve Bank of Philadelphia expect the economy to grow again in the last three months of the year – but at a slower, 1% annual rate.
The Ministry of Commerce had fixed July-September growth at an annual rate of 2.9% in its third-quarter growth forecast published on November 30. Stronger growth in consumer spending, which was revised to 2.3% from the November forecast of 1.7%, was behind Thursday’s 3.2% increase.
“Despite the rapid rise in interest rates, the economy is growing and more importantly, households are still spending,” Rubeela Farooqi, chief US economist at High Frequency Economics, said in a research note. “But looking ahead, we expect a slower growth trajectory in 2023.”
Inflation, which had not been a serious problem for forty years, returned in the spring of 2021. It started off with an unexpectedly strong recovery from the coronavirus recession in 2020, backed by massive government incentives. The Fed has been slow to realize the severity of the inflation problem and only started raising rates aggressively in March.
The employment market has remained resilient from the start, putting upward pressure on wages and prices. Employers have added 392,000 jobs per month so far this year, and unemployment is at 3.7%, a half-century low.