GDP will likely show U.S. economy grew in the third quarter, despite inflation


The US economy is expected to have grown vigorously in a sharp recovery from the first half of the year, but most Americans are unlikely to notice the turnaround.

Ongoing inflation continues to weigh heavily on both economic growth and household budgets, and has become a major flashpoint in the run-up to the midterm elections. A strong reading of the next gross domestic product report, scheduled for Thursday, would be good news for Democrats, who are struggling to convince voters they have a plan to contain rising prices and make the economy more stable.

While the latest numbers probably look like improvements on paper, economists say they don’t reflect major changes in the economy that could head into recession next year.

“This is going to look better than the previous two GDP reports, but conditions on the ground haven’t changed much,” said Douglas Holtz-Eakin, president of the American Action Forum and former director of the Congressional Budget Office. “Inflation is still taking its toll. Concerns about the Fed tightening remain. Things are not fundamentally different.”

GDP, the broadest measure of economic activity, is expected to rise about 2.9 percent between July and September, according to a tracker from the Federal Reserve Bank of Atlanta. That’s in line with some of the stronger pre-pandemic years of economic growth.

It comes after six months of contraction, with the US economy shrinking 1.6 percent and then 0.6 percent in the first two quarters of the year. That slump in the first half raised fears that the country was already in a downturn, although recessions aren’t typical when unemployment hits near record lows. The official statement is made by a panel of experts, and economists generally agree that the US economy has averted a recession – at least this year.

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America’s return to growth is in stark contrast to other major economies, including Europe and the United Kingdom, which are either already in recession or almost certainly headed for recession. China’s “zero-covid” policy has also become a drag on economic growth, having been one of the leading engines for a long time. (China recently delayed releasing GDP data, obscuring the economic situation.)

The most recent US GDP data is likely to be supported by a narrowing trade gap, as the United States imports less goods due to declining demand. In addition, retailers’ inventory levels are expected to show stronger growth as the supply chain issues from the pandemic era are ironed out. Neither factor has much of an impact on Americans’ daily lives.

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Economic uncertainty is one of the biggest problems during the November 8 midterm exams, where gun control, abortion rights and immigration also loomed. And the stakes are high: Democrats are within six seats of losing control of both the House and Senate.

“Don’t be fooled by an uptick in GDP,” Joseph LaVorgna, chief economist at SMBC Nikko Securities America and former Trump White House economic adviser, wrote in a recent note to clients. “Is the economy out of trouble? No. The economy often generates healthy gains in real GDP around the start of the recession. This has indeed happened in four of the last six recessions.”

Why the US economy shrank in early 2022

A growing chorus of economists say a recession in 2023 is all but inevitable as the Federal Reserve continues to aggressively raise interest rates in hopes of slowing the economy enough to keep inflation in check. There is also growing fear that turmoil abroad, in Europe and Asia, could seep into the US economy.

But for the time being, the economy remains strong due to many measures. Unemployment is near all-time low at 3.5 percent, and many Americans are getting pay raises. Business investment and consumer spending remain strong, even as households and entrepreneurs say they are pessimistic about their finances and the direction of the economy.

The White House pointed to strong job growth and steady consumer spending — which accounts for nearly 70 percent of GDP — as promising signs that the economy remains robust.

“When you try to understand the strong growth of the US economy, it is clear that the labor market is making a crucial contribution,” said Jared Bernstein, member of the president’s Council of Economic Advisers. “Most people get their income through the job market — it’s paychecks, not stock portfolios — so if people work and get ahead, that’s going to be a major contributor to the economy.”

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Economists are closely monitoring an important metric that takes away factors such as trade and retailers’ inventory levels. Those metric, final sales to private domestic buyers provide a clearer picture of U.S. demand and have increased every quarter since the start of the pandemic. However, growth rates are starting to slow this year, suggesting that economic profits are slowing even as GDP rises.

“The nuance is really important now,” said Andrew Patterson, senior international economist at Vanguard. “If you look at the underlying statistics, consumption by households, companies and government shows a consistent downward trend. We may see positive GDP growth this time around, but that’s due to a drop in imports rather than higher consumption.”

Biden’s bailout made inflation worse, but the economy better

However, reading economic tea leaves is often as much about household and business perceptions as it is about actual numbers. Even with a booming job market and solid spending, many Americans feel incredibly pessimistic about the economy. Consumer confidence remains close to record lows, with many Americans saying they expect an even rockier road, according to a closely monitored University of Michigan index.

That gloom is driving voters across the country to reassess their decisions ahead of the midterm elections. Polls consistently show that inflation remains a top problem for many Americans.

In Nashville, Cheryl Beaumont is voting Democrats for governor and congress, although she says several friends are switching to Republican candidates due to economic concerns. Many struggle with higher food and gas costs, she said, and don’t feel the current government is doing enough to lower prices.

“Democrats still talk about gun safety and abortion, but the real concern for ordinary Americans is, how do I feed my family? How do I pay the rent?” said Beaumont, 52, who handles transportation logistics for a shoe retailer. “They want a plan. People no longer have the luxury of setting principles for inflation.”

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Prices are up 8.2 percent in the past year, government figures show, although many necessities such as groceries, gas, utilities and healthcare have risen significantly more. As a result, more Americans are diving into their bank accounts and taking on more credit card debt to make ends meet. Many say they feel a growing sense of despair as wage increases and pandemic savings are swept away by inflation.

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Philip Hyatt, owner of a barbecue catering business in Carson City, Nev., says recession concerns have prompted many customers to postpone bookings for next year. At the same time, he’s facing double-digit price hikes for just about everything from spices to ribs, and says he’ll vote Republicans in the meantime, in part because he feels President Biden hasn’t done enough to address rising costs. .

“A lot of this inflation would happen no matter who was in power,” he said. “But I also see things happening in the White House that aren’t conducive to getting us through this or alleviating this pressure.”

But while voters still say the economy is their number one concern this fall, there are signs that many Americans are starting to feel at least a little better about their finances as gas prices plummet from the record highs of the summer.

Republicans have the edge on the issues that matter most to Americans

Theresa McCloskey, owner of a graphic design and printing company near Philadelphia, is plagued by supply shortages and rising prices. But she says she is more concerned about abortion rights. While she often votes for candidates on both sides of the aisle, this time she plans to stick with the Democrats completely.

“While my job as an entrepreneur is literally a roof over my head, I personally believe that my rights as a woman — and the rights of my daughter and nieces — are far more important than anything the economy can throw at me.” “I don’t care what things cost. I’ve had three jobs as a single mother before, and I’ll do it again if I need to to maintain my rights.”

McCloskey, who has cut back on eating out and traveling to save money, says she’s optimistic about the economy. Schools, car dealers and other customers continued to spend money on business cards, brochures and large banners. Her sales are on track to surpass last year’s by 20 percent, and she hopes the United States can avoid a recession.

“Inflation is a difficult point right now,” she said. “But if it gets more expensive, I’ll cut back or find another job. I’m not going to worry just yet.”


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