The US economy grew at a solid pace in the third quarter, marking the first advance this year as consumers proved resilient in the face of widespread inflation and the Federal Reserve’s rapid interest-rate hikes.
Gross domestic product rose at a 2.6% annualized rate in the July to September period after falling for the first two quarters, the Commerce Department’s preliminary estimate showed Thursday. Personal consumption, the biggest part of the economy, climbed at a 1.4% pace, better than forecast but still a slowdown from the prior quarter.
The median projection in a Bloomberg survey of economists called for a 2.4% rise in GDP and a 1% advance in personal consumption.
The details of the report showed a strong increase in business investment, bolstered by equipment and intellectual property products. Consumer spending was driven by an increase in outlays on services, and government spending also added to the headline figure.
Still, the biggest contributor to GDP was the volatile net exports category. Meantime, the housing sector was a significant drag on growth.
A key gauge of underlying demand that strips out the trade and inventories components -- inflation-adjusted final sales to domestic purchasers -- rose 0.5% in the third quarter, one of the slowest since the start of the pandemic.
While the quarterly expansion may help alleviate concerns that the US is already in a recession, the economy’s main engine -- consumer spending -- remains under pressure from the highest inflation in a generation. A strong labor market and savings amassed over the course of the pandemic have so far provided Americans the wherewithal to keep spending.
It’s unclear how long households can hold up as the Fed’s efforts to tame inflation pose headwinds to growth. In the near-term, it’s driven up mortgage rates to the highest in two decades, causing a rapid deterioration of the housing market. And in the coming year, many economists expect the central bank’s actions to ultimately push the economy into recession.
The personal consumption expenditures price index, an inflation measure followed by Fed officials, grew an annualized 4.2% in the third quarter, the slowest pace since the end of 2020. Stripping out food and energy, the index rose 4.5%. September data will be released Friday.
US stock futures reversed losses following the report, while short-term Treasury yields fluctuated.
Fed Chair Jerome Powell has said the central bank believes the US will need both a period of below trend growth and some softening in labor market conditions to reach its inflation goal. While policymakers hope to avoid a recession, the Fed’s latest forecasts have the economy growing just 0.2% in 2022 and 1.2% in 2023.