Topline
The U.S. economy grew more than economists expected in the third quarter—officially signaling the economy has emerged from a so-called technical recession earlier in the year, but the largely expected rebound has done little to quell economists’ concerns that the nation will ultimately plunge into an official recession over the coming months, as the impact of the Federal Reserve’s interest rate hikes take their toll on growth.
The U.S. economy has officially emerged from a technical recession, but economists aren’t so sure … [+]
Key Facts
The U.S. economy grew at an estimated annual rate of 3.2% in the third quarter after falling 0.6% and 1.6% in the first two quarters—growing faster than the 2.9% economists had projected and signaling the end of a technical recession, the Bureau of Economic Analysis reported Thursday.
The increase primarily reflected increases in exports and consumer spending that were offset by declines in the housing market, which has suffered from a dearth in demand spurred by higher mortgage rates, the government said.
Despite the return to growth, economists have increasingly predicted the U.S. economy will likely contract next year as markets digest the impact of the Fed’s interest rate hikes, which work to tame inflation by tempering consumer demand.
The data came as the Labor Department reported new jobless claims ticked up by 2,000 to 222,000 last week, suggesting the job market remains strong despite waves of growing layoffs.
“Don’t be deceived,” Pantheon Macro chief economist Ian Shepherdson wrote in an email, noting the data should begin to rise as businesses continue to respond to the tightening financial conditions, with layoff announcements reported by career services firm Challenger Gray already pointing to an imminent uptick in jobless claims.
Earlier this month, Bank of America downgraded its forecast for fourth-quarter gross domestic product growth to 1.2% from 1.4% a week prior as new export data continued to show signs of economic weakness; like many others, the bank’s economists predict the U.S. will ultimately fall into a recession next year.
Tangent
Though a technical recession comprises two consecutive quarters of negative GDP growth, the definitive recession call is up to the National Bureau of Economic Research, which defines a recession as “a significant decline in economic activity” lasting “more than a few months.”
Key Background
Skyrocketing prices have forced central banks around the world to reverse pandemic-era policy measures meant to bolster markets—and the Fed’s rate hikes have hit the formerly booming housing and stock markets particularly hard. New home sales plunged to a six-year low this summer, and the S&P 500 has tanked 20% this year. As the economy faces a potential recession, many experts predict the downturn may only get worse. Morgan Stanley, for example, projects the S&P will ultimately hit a bear-market low of between 3,000 and 3,400 points—suggesting the index could still plummet another 10% to 20%.
Further Reading
Source: https://www.forbes.com/sites/jonathanponciano/2022/12/22/is-the-economy-on-the-brink-of-recession-heres-why-strong-gdp-data-may-not-tell-the-whole-story/