WASHINGTON (`) – Despite rampant inflation and rising interest rates, the U.S. economy grew by stronger-than-expected annual growth of 3.2 percent from July to September, the government reported Thursday in a healthy upgrade from its earlier estimate of third-quarter growth .
The rise in gross domestic product – the economy’s production of goods and services – marked a return to growth after consecutive declines in the January-March and April-June periods.
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Still, many economists expect the economy to slow and likely slide into recession over the next year, amid pressure from higher interest rates being introduced by the Federal Reserve to combat inflation, which has not been seen since the early 1980s earlier this year has reached a higher level.
Strong exports and healthy consumer spending drove growth in the third quarter.
Home investment plunged at an annualized rate of 27.1 percent, offset by higher mortgage rates following the Fed’s decision to raise its own interest 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 outlook for the fourth quarter comes on January 26th. 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 annual rate of 1 percent.
In its previous estimate of growth for the third quarter, released Nov. 30, the Commerce Department put July-September growth at an annual rate of 2.9 percent. Stronger growth in consumer spending, which was revised to an annualized rate of 2.3 percent from 1.7 percent in the November estimate, was behind Thursday’s upgrade to 3.2 percent.
“Despite a 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. “However, looking ahead, we expect a slower growth trajectory in 2023.”
Inflation, which had not been a serious problem for four decades, returned in spring 2021. It was prompted by an unexpectedly strong recovery from the 2020 coronavirus recession, fueled by massive government stimulus. The Fed was slow to recognize the seriousness of the inflation problem and only began aggressively raising interest rates in March.
The labor market has remained stable throughout, putting upward pressure on wages and prices. Employers have added 392,000 jobs each month so far this year, and the unemployment rate is 3.7 percent, just under a half-century low.
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