On October 26th local time, the US Department of Commerce's Bureau of Economic Analysis released its first estimated data showing that the annualized quarterly growth rate of US gross domestic product (GDP) in the third quarter of this year was 4.9%, higher than market expectations of 4.7%, and more than twice the growth rate of 2.1% in the second quarter.
Reuters and CNBC reported that this is the fastest growth rate recorded by the US economy in nearly two years, reaching a new high since the fourth quarter of 2021. Reuters believes that under the terrifying warning of a "recession in the US economy", wage increases due to tight labor markets have helped boost consumer spending. CNBC believes that although this may provide some impetus for the Federal Reserve to maintain its tightening policy, analysts still anticipate that there is little likelihood of a meeting next week announcing a rate hike.
The percentage change in quarter on quarter GDP in the United States is shown in CNBC
Reuters mentioned that although the Federal Reserve has significantly raised interest rates and the GDP growth rate of 4.9% in the third quarter may not be sustainable, this demonstrates the "resilience" of the US economy. The report also reminds that the growth rate of US GDP in the fourth quarter of this year may slow down due to the UAW strike and the resumption of student loan repayments by millions of Americans.
The strong labor market has supported consumer spending. "The report suggests that although American wage growth has slowed down, its growth rate is slightly faster than inflation, which has increased households' purchasing power. The growth rate of consumer spending in the third quarter is expected to exceed 4.0%, while the growth rate in the second quarter is only 0.8%.
Regarding the statement that the US economy is in a recession, Sal Guatieri, senior analyst at BMO Capital Markets, said: "What we are seeing is the opposite of [the recession]. As the largest engine of the US economy, US consumers seem to have recovered in the middle of the year, mainly due to a rebound in the stock market and stabilization of gasoline prices this summer, and improved confidence
CNBC also pointed out that the "sharp growth" of 4.9% in the US economy in the third quarter was contributed by consumer spending, increased inventory, exports, residential investment, and government spending. In addition to consumer feedback, the total domestic private investment in the United States surged by 8.4% in the third quarter, while government spending and investment increased by 4.6%.
Source image: An American consumer selects products at a vegetable and fruit stall in Brooklyn, New York. Image from Reuters
Reuters believes that the US GDP data may not affect recent monetary policy, as the financial environment has tightened, US Treasury yields have surged, and the stock market has been sold off.
Financial markets expect the Federal Reserve to maintain interest rates unchanged from October 31st to November 30th. Next week, the Federal Reserve will hold a policy meeting. Since March 2022, the Federal Reserve has raised interest rates up to 11 times, with a target range of the federal funds rate ranging from 5.25% to 5.5%, reaching its highest level in 22 years.
CNBC stated that the Federal Reserve is currently raising interest rates at its fastest pace since the 1980s and has vowed to maintain high interest rates until inflation returns to an "acceptable level". Currently, despite a decrease in inflation rates in recent months, the price increase in the United States still far exceeds the annual target of 2% set by the Federal Reserve.
In addition to interest rates and inflation, American consumers still need to deal with various other issues for a long time. The report points out that resuming student loan payments is expected to reduce the budget of American households, and the rise in gasoline prices and stock market fluctuations are also hitting consumer confidence. At the same time, geopolitical tensions have also brought potential problems, whether the Palestinian Israeli conflict or the Russia-Ukraine conflict, which have posed great uncertainty for the future.