The growth of the US economy was stronger than expected in the third quarter | Tech Reddy

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CNN Business
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The US economy grew much faster than expected in the third quarter, according to the latest gross domestic product report, which showed that GDP increased by an annualized rate of 2.9%.

That’s an improvement from the government’s initial reading in October that showed 2.6% growth in economic activity, and better than the Refinitiv forecast of 2.7%. And it is a turn marked by economic contractions of 1.6% in the first quarter of the year and 0.6% in the second.

The better-than-expected growth came as consumer spending rose more than in the government’s previous reading, while the value of imports was revised down. Imports are subtracted from GDP, which is the broad measure of economic activity in the country.

The strong reading did not necessarily erase the risk forecast by many economists of the US economy falling into recession at some point in the next year.

But the stronger-than-expected growth shows the economy’s resilience in the face of headwinds caused by the Federal Reserve’s aggressive course of large interest rate hikes in an attempt to slow down economy in order to tame the high inflation of decades.

The US labor market, which will be measured again when Friday’s November jobs report is released, remains strong, with employers still hiring and unemployment near a half-century low. And while consumers struggle with higher prices, they continue to spend money. More than two-thirds of US economic activity is driven by consumer spending.

One of the biggest drags on economic growth is the pullback in spending on home construction in the face of higher interest rates. The GDP report showed that investment in housing construction cut 1.4 percentage points from overall growth. This means that the economy would have grown at a very strong annualized rate of 4.3% if spending on house building had remained constant.

“The Federal Reserve’s rate hikes to date have mostly just sent the housing sector into a recession where the rest of the economy continues to do quite well,” said Christopher Rupkey, chief economist for the Fwdbonds market research company.

The report gives a green light for the Fed to be aggressive in raising rates, Rupkey said.

“Consumer spending and business investment in equipment are holding up well despite Federal Reserve interest rates 3.75 percentage points higher this year,” he said. “If the Fed is trying to slow the economy by hitting the brakes, they haven’t done enough.”