The US economy may expand at its fastest pace in nearly two years in the third quarter, with this astonishing acceleration mainly due to consumers benefiting from the flexibility of the job market, increased wealth, and easing inflation. The US gross domestic product (GDP) data for the third quarter will be released on Thursday. According to a survey, economists expect the annualized growth rate of US GDP for the third quarter to be 4.5%, more than twice the growth rate in the second quarter. This will be the fastest growth rate since the end of 2021, when the US economy was emerging from the impact of the pandemic.
On October 20th, Elie Maalouf, CEO of Intercontinental Hotels Group, stated in a performance conference call that "the performance of American consumers has exceeded most forecasts, including the Federal Reserve's predictions. The Federal Reserve is looking for signs of weakness in American consumers, but they have not found them
This quarter of explosive economic growth is good news for US President Biden, as he finds it difficult to convince Americans still affected by sustained inflation that his economic policies are working. Secondly, the strong economy has left Federal Reserve Chairman Powell and his colleagues in a dilemma. Since March 2022, the Federal Reserve has been actively raising interest rates, attempting to curb inflation by suppressing demand while avoiding economic recession. With the COVID-19 and the Russia Ukraine war reducing the interference to the global supply chain, inflation has cooled down. But despite the efforts of the Federal Reserve, the domestic demand of the United States is still strong.
The strong job market is still driving consumer spending, and business activities are also gaining momentum. Powell stated last week that other signs of sustained strong economic growth "may pose further risks to inflation and may justify further tightening of monetary policy". Powell hinted that policymakers may keep interest rates unchanged at next week's meeting while opening the door for further rate hikes in the future.
If the economic growth data cannot cool down quickly, he may not have much patience, "said Bruce Kasman, Chief Economist of JPMorgan Chase
The problem is that many forecasters, including those from the Federal Reserve, are caught off guard by the resilience of the US economy in the face of multiple Fed rate hikes. In the third quarter, American consumers continued to consume crazily as stable wage growth and declining inflation gave them more money to pay for goods and services. Due to the rise in housing and stock prices, there will be a record surge in household wealth in the United States this year, which may also have played a role in encouraging consumption.
There are many temporary economic benefits in the third quarter, but it is difficult to reproduce in the fourth quarter
However, Powell pointed out that Federal Reserve forecasters generally expect the US economy to slow down in the fourth quarter and next year after experiencing a "very strong" third quarter. Economists predicted earlier this month that according to the median forecast, the annualized growth rate of US GDP in the fourth quarter was only 0.7%.
Anna Wong, Chief US Economist at Bloomberg Economics, said that the tour of Taylor Swift and Beyonce, as well as the spending on summer blockbusters "Barbie" and "Oppenheimer", also boosted spending in the third quarter. But the US economy may not experience such a boost in the fourth quarter.
These superstar tours and blockbusters are expected to contribute $8.5 billion to US economic growth in the third quarter. These two artists' nearly 50 US tour concerts may add $5.4 billion to the US GDP, while the movies "Barbie" and "Oppenheimer" are expected to increase consumer spending and international ticket sales by approximately $3.1 billion in exports. Overall, this will increase the actual personal consumption expenditure and GDP of the United States by 0.7 and 0.5 percentage points respectively in the third quarter.
Yelena Shulyatyeva, senior US economist at BNP Paribas, said: "This seems to be largely driven by consumer spending on non essential goods and services. We believe this is only a temporary boost
It may also be a temporary positive factor: a decrease in imports and an increase in inventory in the third quarter. Economists say that given the strong consumer demand, these two situations are surprising and therefore unlikely to repeat in the fourth quarter of 2023. Secondly, some economists believe that after dragging down GDP for more than two years, real estate boosted GDP in the third quarter. However, in recent weeks, against the backdrop of rising US treasury bond bond yields, mortgage interest rates have risen again, which may kill the recovery of residential investment. Diane Swonk, Chief Economist at KPMG, said: "This is a brief rebound and has begun to reverse
The US economy will also face other unfavorable factors in the fourth quarter that have not been encountered before, including the resumption of student loans after the suspension of the epidemic, and the expansion of the strike by car workers. Other risks include the possibility of a US federal government shutdown next month and the threat of a broader war in the Middle East.
Mark Zandi, Chief Economist of Moody's Analytics, said he expects the US economy to slow to around 1% in the fourth quarter after reaching a growth rate of 3.8% in the third quarter. Zandi said that adding these two data to an average would result in a good performance in the second half of the year, closer to the potential level of the economy and more in line with the roughly stable unemployment rate. He added that this would be more comfortable for the Federal Reserve.