Even with inflation hovering around a 40-year high and significantly increasing interest rates, the U.S. economy recovered from July through September after contracting during the year’s first half. However, rather than an indication of a better future, the progress was probably only a respite before the anticipated recession of the coming year.
What Contributed To The US’s Recent Economic Improvement?
Good trade balance, small increases in consumer and corporate expenditure, an offset to a further decline in house building, and weaker company stockpiling are all factors that contributed to the recent impressive performance of the U.S. economy.
According to Gregory Daco, chief economist of EY-Parthenon, “the U.S. economy is indeed slowing. The worth of all products and services provided in the U.S. increased at a seasonally modified yearly rate of 2.6 percent in the q3, according to data released by the Commerce Department on Thursday. Bloomberg predicted a 2.3 percent increase in production.
The increase came after drops of 1.6 percent and 0.6 percent in the previous quarters, respectively, mainly brought on by corporate stockpiling and trade changes. These two unstable areas don’t typically represent the state of the economy.
Will The United States Experience A Recession In The Coming Year?
The National Bureau of Economic Research considers a wider variety of economic activities, such as employment, retail trade, and capacity utilization, before establishing when a recession starts and ends, even though such contractions match informal criteria for the downturn. Despite sluggish but still robust employment growth, most experts do not think the United States is in a recession.
However, there is no question that the economy is slowing down as firms and consumers cut back on spending in the face of rising inflation and the Federal Reserve’s sudden interest rate increases intended to tamp down price hikes.
The GDP data indicated that final sales, which are defined as sales excluding trade, stocks, and government purchases and represent the economy’s primary strength, practically stagnated, edging up only 0.1 percent after rising by 0.5 percent the previous quarter.
The administration also announced earlier this month that companies created a stable 263,000 new jobs in September, which was lower than an average of 382,000 over the previous three months.
Consumer Spending Grows Slightly
Despite rising food and rent prices, Americans restrained their spending but exhibited resiliency. Consumer expenditure, which accounts for 70 percent of economic growth, increased by 1.4 percent after accounting for inflation in the q3 after rising by 2 percent in the second.
Improved job and pay growth and roughly $2 trillion in savings amassed during the pandemic—although that amount is down from a record of $2.6 trillion last year—have helped families. Consumers are switching their expenditures from products to services, like flying and eating out, as their concerns about COVID subside.
However, due to rising interest rates, a slowdown in creating jobs, and a slight easing of inflation, consumption is predicted to decline even further in the coming year.