Third Quarter GDP Growth Revised Downward
The U.S. economy showed signs of resilience in the face of high inflation and steep interest rates, although growth in the third quarter was slower than previously reported. The Commerce Department’s third and final reading of the data revealed that gross domestic product (GDP) grew by 4.9% on an annualized basis from July through September. This marks the fastest pace of growth in nearly two years, but it is lower than the previously reported 5.2% increase.
Consumer Spending Revision
The downward revision to GDP growth was mainly due to a decrease in consumer spending, which was lowered to a 3.1% rate. Despite the strong GDP figures, there are other signs of an economic slowdown. Job growth is moderating, the housing market is experiencing a prolonged downturn, and consumer spending is cooling off.
Optimism for a Soft Landing
Despite these concerns, there is growing optimism on Wall Street that the Federal Reserve will be able to achieve a soft landing for the economy. Bank of America, Goldman Sachs, and UBS have raised the odds of the U.S. economy avoiding a recession and cooling down without a severe spike in unemployment. The Federal Reserve has already implemented multiple rate cuts and lowered their inflation outlook for the coming year.
“The odds of the U.S. economy entering a recession in the next 12 months are higher than usual, around 45%, but while we believe a slowdown is nearly inevitable, a recession is by no means guaranteed,” said Lydia Boussour, EY senior economist.
Outlook for the Future
Although the current GDP growth numbers indicate a resilient economy, economists expect further cooling in the coming months as higher interest rates continue to impact consumer and business loans. The Federal Reserve’s ability to manage this slowdown will be crucial in determining the future economic trajectory.