US economy grew 2.6% from July through September

President Joe Biden is on a winning streak following a new report showing the US economy grew in the third quarter after six months of contraction, but economists warn signs of growth may be illusory.

Real gross domestic product, a measure of all economic output in the country, rose 2.6 percent from July to September after two consecutive quarterly declines, the Commerce Department said Thursday.

The rebound was largely due to a rebound in the same technical factors that caused the decline in the first half, such as the trade balance and private inventories, which can fluctuate without signaling the underlying health of the economy.

But Biden, who had furiously denied that the economy was in recession after two consecutive quarters of contraction, was quick to take the turn and tout it as evidence of a strong recovery.

“For months, doomsayers have argued that the US economy is in recession and Congressional Republicans are keeping their fingers crossed,” Biden said in a statement.

“But today we have further evidence that our economic recovery is continuing,” he added.

In his statement, Biden also took credit for falling gas prices, which have fallen from their June peak of more than $5 a gallon to a national average of $3.79 earlier this week.

“Now we need to make more progress on our most important economic challenge: lowering the high prices for American families,” Biden said.

However, economists have expressed fears that the economy is on shaky ground, and skeptical that the latest GDP report represents healthy growth.

“If you step back and look at GDP, it’s basically gone nowhere in the past year,” said Mark Zandi, chief economist at Moody’s Analytics. NPR.

‘It’s a quarter or two less. It’s a little higher this quarter. But just-just, we’re kind of treading water,’ he added.

Thursday’s GDP result, which is preliminary, reversed annual declines of 1.6 percent from January to March and 0.6 percent from April to June.

Consecutive quarters of declining economic output are an informal definition of a recession, but Biden insisted the US had not entered a recession.

Also, most economists say they believe the economy has so far avoided a recession, citing the robust labor market and steady consumer spending.

However, a majority of economists and CEOs say a recession is likely within the next year as the Federal Reserve continues to raise interest rates aggressively to fight inflation.

“Real GDP rose in the third quarter, but I don’t expect that growth to continue later this year or early next year,” John Leer, chief economist at decision-information firm Morning Consult, told DailyMail.com.

Leer noted that much of the growth in the third quarter was driven by an increase in exports as global trade reopened, but noted that “weak global demand coupled with a relatively strong US dollar is likely to boost export growth significantly.” to limit’.

“Consumer spending is also at risk,” he added. “Since peaking in 2020 following the passage of the CARES Act, household personal savings have fallen from $4.9 trillion to $626 billion. Without this war chest, consumers will probably withdraw in the coming months.’

While the economy may not be in recession, risks of a sharp downturn have increased as the Fed doubles rate hikes to combat the fastest-rising inflation in 40 years.

The US central bank raised its benchmark overnight interest rate from nearly zero in March to the current range of 3 to 3.25 percent, the fastest rate of tightening in a generation or more.

The Fed is trying to tame inflation by cooling the economy, but as it continues to raise interest rates, the risks are mounting that the country will enter a sharp downturn with heavy job losses.

Thursday’s GDP report is likely to encourage the Fed to press ahead with another 0.75-point jumbo rate hike at its meeting next week.

Fed officials will also keep a close eye on September personal consumer spending price data and third-quarter labor cost data, both released on Friday.

The most recent GDP report showed that stronger exports and steady consumer spending, supported by a healthy labor market, helped the US economy recover growth.

Consumer spending, which accounts for about 70 percent of U.S. economic activity, grew 1.4 percent year-on-year, up from 2 percent from April to June. Last quarter’s growth was also boosted by exports, which jumped 14.4 percent year-on-year.

However, residential investment fell at an annual rate of 26 percent, hammered by rising mortgage rates as the Federal Reserve raises borrowing costs to fight chronic inflation.

The outlook for the general economy has turned bleak. The Fed has raised rates five times this year and will do so again next week and in December.

Fed Chair Jerome Powell has warned that the Fed hikes will bring “pain” in the form of higher unemployment and possibly a recession.

The latest government GDP report comes as Americans, concerned about inflation and the risk of a recession, have begun voting in midterm elections that will determine whether Biden’s Democratic Party retains control of Congress.

Inflation has become a hallmark problem for Republican attacks on Democrat stewardship of the economy.

Headline inflation remains stubbornly high at 8.2 percent, and core inflation, which excludes volatile food and energy prices, reached a four-decade high of 6.6 percent in September.

With inflation soaring, steady price spikes have put pressure on households across the country. At the same time, rising interest rates have derailed the housing market and are likely to do greater damage over time.

The prospects for the global economy are also turning bleak as Russia’s war on Ukraine continues.

The ‘second’ estimate for third-quarter GDP, based on more complete data, will be released on November 30.