For the Biden administration, which is eager to prove its governing ability in next year's general election, this Thursday may be a golden window for them to put in a lot of effort and boast about themselves - because the GDP data released by the US Department of Commerce on that day is likely to show that the annualized quarterly rate of the US real GDP in the third quarter has "doubled" compared to the first two quarters of this year
Although the US economy is currently facing many obstacles such as rising borrowing costs and the resumption of student loan repayments, and wars are still raging in Ukraine and the Middle East, recent economic data shows that the US economy is still accelerating growth!
According to media surveys of economists and industry organizations, the US Gross Domestic Product (GDP) is expected to grow at an annualized rate of 4.3% in the third quarter ended September 30th. Many analysts who had originally expected the US economy to decline this year have also hastily raised their forecasts recently.
Last week, Goldman Sachs economists raised their expectations for the US economic growth rate in the third quarter from 3.7% to 4%; High Frequency Economics, an economic consulting firm, has raised its third quarter growth rate forecast from 4.4% to 4.6%; Bank of America's latest forecast is 4.5%.
If the growth rate of the United States in the third quarter ultimately falls within the aforementioned forecast range, it will undoubtedly indicate a significant acceleration of the US economic growth compared to the 2.2% in the first quarter and the 2.1% in the second quarter. The US Department of Commerce will release official GDP data at 20:30 Beijing time on Thursday.
In fact, according to predictions by economists and Federal Reserve officials at the beginning of this year, the US economy should have experienced a significant slowdown or even near stagnation in the third quarter, as a significant increase in interest rates would lead to a decrease in spending and investment.
However, the current reality is exactly the opposite!
The multiple economic data released in the past few weeks are sufficient evidence of this. In some ways, the US labor market actually became stronger in the third quarter. In September, the number of new non farm employment in the United States reached 336000, a significant increase from 227000 in August and 236000 in July.
The hot recruitment has clearly stimulated strong consumption. After growing by 0.2%, 0.6%, and 0.8% in June, July, and August respectively, US retail sales data in September increased by 0.7% month on month. The manufacturing industry, which declined in the spring of this year, also showed signs of rebound - data released by the Federal Reserve on Tuesday showed that manufacturing output grew by 0.4% in September; Previously, it decreased by 0.1% in August.
In addition, major Wall Street banks such as Citigroup and JPMorgan Chase also reported strong financial results this month, and their executives stated that their economic outlook has improved. Last Thursday, American Airlines Group also pointed out that it is expected that the demand for tourism during this holiday season will be stronger than last year.
How did the hot US economy "fix up"?
Many ordinary investors may be puzzled by the ongoing abnormal heat phenomenon in the US economy. However, industry insiders have provided several seemingly reasonable driving reasons for this.
Firstly, the current cooling of inflation in the United States, coupled with strong wage growth, means that real wage growth is further increasing.
According to Ian Shepherdson, Chief Economist at Pantheon Macroeconomics, the inflation adjusted annualized growth rate of US after tax income between December last year and June this year was 7%. This has increased the household savings rate from 3.4% in December last year to 5.3% in May, and further increased the accumulated savings of approximately $1.2 trillion left by the stimulus plan during the pandemic.
In the third quarter, American households began to consume these savings, which stimulated new spending. The savings rate dropped to 3.9% in August.
Barclays Bank Chief US Economist Marc Giannoni said that the easing of concerns about economic recession may also make American households more willing to spend money, especially now that the US economy seems to have largely escaped the impact of the collapse of Silicon Valley banks and signature banks this spring. After predicting a recession in the US economy over the past year, economists surveyed by US media this month said they now believe that the US economy will avoid a recession in the next 12 months.
At the same time, the Federal Reserve's interest rate hike policy does not seem to have the expected cooling effect on the US economy. Federal Reserve Chairman Powell stated last Thursday that this may be due to businesses and households locking in lower interest rates during the pandemic, when the Fed's short-term interest rate target was close to zero.
In fact, according to the findings of Jeffrey economists, although the Federal Reserve has raised interest rates, the proportion of corporate interest expenses to revenue has actually been decreasing over the past year. According to research by the New York Fed, although higher mortgage rates have made it more difficult to raise funds for new home purchases, approximately 14 million homeowners have already refinanced during the pandemic. The bank found that this reduced the mortgage payments of many households and, in some cases, allowed them to cash out some of their home equity, thereby increasing household savings by approximately $400 billion in the second quarter.
How will the US economy develop next? There are no more than three situations
So, after performing exceptionally well in the third quarter, where will the US economy go next? Economists have also identified three potential outcomes.
Outcome ①: The worst-case scenario is undoubtedly that the current economic boom is still short-lived. This is not entirely traceable - although hourly wages are rising, the working hours of American workers are decreasing. In September, the weekly salary of American employees, adjusted for inflation, decreased by 0.2% year-on-year, marking the first decline since May. If this situation continues, households may reduce their expenses.
Outcome ②: The second scenario is that the economy may continue to operate vigorously, ultimately driving inflation up again. This ultimately does not rule out the situation of 'being too calm' - which may prompt the Federal Reserve to further raise interest rates, thereby slowing down economic growth and increasing the risk of economic recession.
Outcome ③: The final scenario is that economic growth may remain strong while inflation remains within a controllable range. The 'blonde girl scenario' referred to by economists will undoubtedly be the best scenario that people can expect - because it means an increase in productivity, allowing the economy to produce more goods and services without causing a significant rebound in inflation. If that's the case, the Federal Reserve can continue to maintain strong growth without raising interest rates.
So, can the 'blonde girl scene' emerge in the future? There are some signs that the prospects may indeed be promising.
For example, the proportion of eligible age workers (i.e. those who are working or looking for work) in the United States is reaching its highest level in more than 20 years. This indicates that employment growth can be maintained at a high level without the need for employers to raise wages so much that they must simultaneously raise prices. Driven by federal subsidies, the transition to clean energy is also stimulating new commercial investment. In the second quarter of this year, private sector non residential spending in the United States accounted for 14.7% of inflation adjusted gross domestic product, the highest record since 2007.
However, many economists have not yet fully accepted this optimistic situation. Ben Herzon, an economist at S&P Global, said, "Has the economy undergone a transformation so that we don't have to worry about inflationary pressures caused by tight labor markets? I don't think that's the case