The nation's economy expanded at a robust 4.9% annual rate from July through September as Americans defied higher prices, rising interest rates, and widespread forecasts of a recession to spend at a brisk pace. The Department of Commerce said the economy expanded last quarter at the fastest pace in more than two years—and more than twice the 2.1% annual rate of the previous quarter, per the AP. Thursday's report on the nation's gross domestic product—the economy's total output of goods and services—showed that consumers drove the acceleration, ramping up their spending on everything from cars to restaurant meals. Even though the painful inflation of the past two years has soured many people's view of the economy, millions have remained willing to splurge on vacations, concert tickets, and sports events.
Last quarter's robust growth, though, may prove to be a high-water mark for the economy before a steady slowdown begins in the current October-December quarter and extends into 2024. The breakneck pace is expected to ease as higher long-term borrowing rates, on top of the Federal Reserve's short-term rate hikes, cool spending by businesses and consumers. The growth figures for the third quarter revealed that federal, state, and local governments ramped up their spending, and businesses built up their stockpiles of goods in warehouses and on shelves, which helped drive growth higher. The economy managed to accelerate despite the Fed's strenuous efforts to slow growth and inflation by raising its benchmark short-term interest rate to about 5.4%, its highest level in 22 years.
Several Fed officials acknowledged in speeches last week that the most recent economic data showed growth picking up by more than they'd expected. Still, most of the policymakers signaled that they'll likely keep their key rate, which affects many consumer and business loans, unchanged when they meet next week. A range of factors are helping fuel consumer spending, which accounts for the bulk of the economy's growth. Though many Americans are still feeling pressure from two years of high inflation, average pay is starting to outpace price increases and enhance people's ability to spend. Wages and salaries in the April-June quarter, the latest period for which data is available, rose 1.7% after adjusting for inflation, according to the Labor Department. That was the fastest quarterly increase in three years.
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Still, consumers are likely reining in their spending in the final three months of the year, and the sluggish housing market is dragging on the economy as well. This month, nearly 30 million people began repaying several hundred dollars a month in student loans, which could slow their ability to spend. Those loan repayments had been suspended when the pandemic struck three years ago. The economy faces other challenges as well, including the prospect of a government shutdown next month and a spike in longer-term interest rates since July. The average 30-year mortgage rate is approaching 8%, a 23-year high, putting homeownership out of reach for many more Americans. Fed Chair Jerome Powell will hold a news conference on Wednesday that will be scrutinized for any hints about the Fed's next moves. More here.
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