Topline
U.S. economic output grew at its most robust annual rate in nearly two years during the third quarter, as the economy demonstrates surprising signs of resilience—though experts are not convinced growth will continue this trajectory as a variety of headwinds test the economy.
Key Facts
Gross domestic product increased at an annual rate of 4.9% during the three-month period ending September 30, according to Bureau of Economic Analysis data released Thursday morning.
That tops even the lofty 4.7% expansion forecasted by economists surveyed by the Wall Street Journal.
It’s the largest 12-month gain in GDP since 2021’s fourth quarter, which most notably was the quarter preceding the Federal Reserve’s ongoing interest rate hiking campaign designed to lessen inflation and expected to bring down economic growth as collateral damage.
But the strong GDP growth is “unlikely to last,” Comerica’s chief economist Bill Adams wrote in emailed comments, suggesting the “splurge” in discretionary spending in the summer will likely cool, exacerbated by a variety of shocks including the resumption of student loan payments and a possible federal government shutdown that will weigh on GDP.
JPMorgan economists project annual GDP growth to slow to 1.5% during 2023’s final quarter, which would be the weakest growth since 2022’s second quarter.
Key Background
The U.S. actually entered a technical recession last year when output contracted for consecutive quarters, but most experts agree the economy has yet to enter a full-blown recession despite a variety of concerning factors, including a run on banks in the spring and the worst stock market losses since 2008 last year. The growth slip-up came after the Fed hiked the federal funds rate from near-zero to a two-decade high of 5.25% to 5.5%, challenging growth as debt financing for consumers and corporations alike grew significantly more expensive.
Crucial Quote
“We’ve only seen the beginning…of the toll this tightening is likely to take on consumers and business,” Darrell Cronk, Wells Fargo Wealth and Investment Management’s chief investment officer, wrote in a note to clients this week. Cronk noted that every time the Fed embarked on a similar hiking campaign over the last 50 years there’s been a “sharp downturn” in the economy, something that’s yet to materialize thus far.
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