The United States economy grew in the third quarter as a strong job market and a decline in inflation gave consumers confidence to spend freely on goods and services.
Gross domestic product, the primary measure of economic output, grew at an annual rate of 4.9 percent from July to September. Commerce Department informed Thursday. It was the strongest performance since the end of 2021, defying predictions of a recession due to the Federal Reserve’s interest rate hike.
The uptick was driven in part by a decline in inflation, which boosted purchasing power despite weak wage growth, and the job market that has shown renewed strength over the past three months.
That’s a far cry from the recession that many were predicting this time last year, before economists realized that Americans had saved enough to cover electricity bills as the Fed made it more expensive to borrow.
“There has been a huge increase in wealth since COVID,” Yelena Shulyatyeva, senior economist at bank BNP Paribas, said, referring to recent Fed data. , not just two, but three and four.
That level of spending in turn fueled strong employment growth in service industries like hotels and restaurants, even as sectors that benefited from pandemic shopping trends like transportation and warehousing returned to more normal levels. And with layoffs still at record lows, workers have no reason to stop making purchases, even if it means using a credit card — an expensive option as interest rates rise.
One beneficiary of those open pocketbooks is Amanda McClements, who owns a home goods store called Salt & Miscellaneous in Washington, DC. Sales are up nearly 15 percent from last year and ultimately surpassed 2019 levels.
“People can’t get enough candles; It remains our top seller,” Ms McClements said. They’re “entertaining more after the pandemic, so we do really well in glassware, tableware, beautiful linens.”
Ms. McClements said business was not equally strong, however: Her plant store, Little Leaf, never bounced back from the depths of the pandemic and closed this year. “We’re experiencing a really uneven recovery,” he said.
Although consumers made a large contribution to the economy’s growth in the third quarter, other factors also contributed. For example, residential investment also got a boost despite high interest rates: those who already own homes have little incentive to sell, so newly built homes are the only ones on the market.
“The third quarter will be the sweet spot where higher mortgage rates kept people in place, builders took advantage of the existing supply shortage and that shows up as an improvement from previous quarters,” said Bernard Yaros, chief U.S. economist at Oxford Economics. Gave.”
The return to growth will likely be brief. Heads into the fourth quarter are looming, including a decline in savings, the resumption of mandatory student loan payments and the need to refinance maturing corporate debt at higher rates.
But right now, the United States is outperforming other major economies, in part because of its aggressive fiscal response to the pandemic and in part because it has been more insulated from the impact of the Ukraine war on energy prices.
“We’re talking about the eurozone and Britain certainly looks to be on the brink of recession, if not already in recession,” said Andrew Hunter, deputy U.S. economist at Capital Economics, an analysis firm. “America is still on the global stage.”
Jenna Smialek Contributed to the reporting.