U.S. Economy Grew 2.6% in Third Quarter, GDP Report Shows

The US economy grew in the third quarter but showed signs of a major slowdown as consumer and business spending weakened due to rising costs and rising interest rates.

Gross domestic product — a measure of goods and services produced nationwide — grew at an annual rate of 2.6% in the third quarter after slowing in the first half of the year, the Sales Department Thursday.

Trade contributed significantly to the third-quarter turnaround as the United States exported more oil and natural gas with the war in Ukraine disrupting supplies in Europe. Consumer spending, the main engine of the economy, grew but at a slower pace than in the previous quarter.

Businesses have cut spending on real estate, however, and real estate investment fell at a 26.4% annual rate, the department said.

Stocks were mixed after the release of GDP and earnings announcements. Government interest rates have declined.

Economic uncertainty is growing and many economists are worried about the possibility of a recession in the next 12 months. They expect the Federal Reserve’s efforts to fight inflation by raising interest rates will continue to weigh on the economy.

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“The overall economy is deteriorating and much of that is the burden of higher inflation and higher interest rates,” said Richard F. Moody, chief economist at Regions Financial. . Corp.

“I don’t think we’ve seen the impact of higher rates on the economy, so that’s why we have a little bit of hope for the next quarter.”

Contribution to Growth

Imports and sales declines led to the growth of the third quarter, while consumers contributed less than before.

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The United States is not alone in the world facing economic challenges. The European Central Bank on Thursday raised its key interest rate to 1.5% from 0.75% as it also tries to ease inflation in a region close to recession.

One of the most interest rate-sensitive sectors — real estate — is showing signs of recovery. Home sales posted their longest decline in 15 years and the average rate on a 30-year mortgage topped 7% on Thursday for the first time in more than 20 years .

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Economists do not expect exports to continue to rise in the third quarter, due to the stronger dollar and the slowdown in the global economy. Many point to recent sales to private home buyers, a measure of consumer and business spending that gauges the economy’s underlying demand, as a sign of a slowdown in the broader economy. It rose at an annual rate of 0.1% in the third quarter after rising 0.5% in the second quarter and 2.1% in the first quarter.

Some of this year’s slowdown reflects a return to normal growth rates after the economy grew at a slower pace last year. is common 5.7% if it returned from the interruption of the previous infection.

The path of the economy depends a lot on consumer prices in the coming months.

Rising inflation and rising interest rates haven’t done much to dampen the health of U.S. consumers, Bank of America Corp Chief Executive Brian Moynihan said in a recent conference call. . The company’s data shows that consumers continue to spend more. They also have more money in the bank than before the pandemic.

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Consumers benefit from a tight labor market. Employers are holding on to their workforce, with jobless claims remaining low from last week. Many companies are also raising wages as they struggle with labor shortages.

“Wage growth is picking up, which is good for consumers, and it’s helping their balance sheet,” said Mark Begor, CEO of credit reporting company Equifax. Inc.

in this month’s pay call. “Obviously, inflation is a bad guy, and it hurts a lot of consumers. But even with inflation, consumers are still spending and moving around and doing all the things they do on the life.”

However, customers may start to get confused. Many are skipping savings and turning more to credit cards to finance spending, said Kathy Bostjancic, chief U.S. economist at Oxford Economics.

Both the consumer sentiment index and the consumer confidence index attempt to measure the same thing: consumer sentiment. WSJ explains why the Federal Reserve is keeping a close eye on consumer confidence in 2022. Credit: Adele Morgan

But with higher interest rates, “there’s really a limit to how much a consumer can rely on a credit card,” he said.

Some companies – especially in sectors that benefited from the consumer goods boom at the beginning of the pandemic – are seeing a withdrawal of customers. Sales are down about 25% this year compared to the same period in 2021 at Altus Brands LLC, said Gary Lemanski, owner of the Grawn, Mich.-based company. which manufactures and sells accessories for hunting, shooting and outdoor recreation.

There are many reasons for the increase in sales in 2020 and 2021 — such as the extra money consumers get from the government stimulus, their time at home to go out in the woods and their inability to spending on services, including travel — has been declining ever since. , he said.

Inflation is causing many consumers to cut back on discretionary purchases, which include products sold by Altus, such as electronic hearing protection headphones that can cost $200 to $250, he said. Mr. Lemanski.

“I talk to a lot of people, and you hear it over and over again: It’s harder to make ends meet,” he said.

Many technology companies are feeling the effects of the slow economy. Facebook parents Meta Platforms Inc.

posted its second consecutive drop in revenue, as the social media company struggles with tough macroeconomic conditions that weigh on advertising spending. Microsoft Corp.

said he expects the decline in personal computer sales and the strength of the dollar to continue to weigh on growth.

Several interest rate hikes have rippled through the US economy, and more are expected to be on the way. The WSJ breaks down the numbers hitting Americans’ wallets this year and beyond. Photo: Elise Amendola/Associated Press

Inflation reduces some consumers’ appetite for big-ticket purchases. A majority of Americans say it’s a bad time to buy a car or large appliances such as furniture, refrigerators or stoves, with a large portion of their thinking being high, according to a University of Michigan survey.

CarMax Inc.,

used car dealer, reported a more than 50% drop in profits last quarter as the tough economy weighed on customers.

“This quarter is a reflection of the widespread pressures facing the used car industry,” William Nash, the company’s chief executive, said on the earnings call. Higher prices, rising interest rates and low consumer confidence “have led to a market slowdown in used car sales,” he said.

Write to Sarah Chaney Cambon at [email protected]

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