US GDP bounces back after contraction in first half of the year

The US economy expanded last quarter, recovering from a contraction in the first half of the year. There are also signs that consumer spending, which fuels the US economy, is starting to decline.

According to initial estimates released by the Bureau of Economic Analysis, GDP rose 2.6% during the third quarter. This is a turnaround after a decline of 1.6% in the first quarter of 2022 and a negative 0.6% in the second quarter. It is important to note that GDP is considered to be the broadest measure of economic activity.

Economists had forecast third-quarter growth of 2.4%, according to the Refinitiv consensus estimates.

While economic growth underscores that the United States is not currently in a recession, economists have warned that the latest GDP report does not mean a recession is not coming.

Much of the increase was due to a rebalancing of imports and exports. Fewer foreign goods were shipped to the United States as consumers shifted their focus from home goods to travel and eating out.

Consumer spending rose 1.4% on an annual basis, showing a slowdown compared to the first two quarters.

Jeffrey Roach, chief economist at LPL Financial, says that outside of more volatile categories, the growth trajectory looks rather weak. According to the economist, a deteriorating housing market, inflation, and an aggressive Fed policy will put the economy in an unsustainable position in 2023.

The biggest variables over the past nine months have been net exports and inventories — two categories that typically don't have as much of an impact on GDP.

During the first half of the year, the trade deficit widened as dependence on imports grew because U.S. production could not keep up with growing demand for goods.

However, trade and inventories improved in the third quarter, with supply chain problems fading as consumer spending shifted towards services rather than goods, resulting in lower imports.

Despite the swing in headline GDP, conditions for consumers have not changed much and fears of an economic downturn still remain.

According to Gus Faucher, senior vice president and chief economist at PNC Financial Services Group, there is about a 50-50 chance of a recession in 2023. Gus Faucher also highlights his observations about slowing job growth, rising housing prices, and rising consumer spending. The economist believes that there is a possibility of a recession in 2023, as interest rates will rise until the end of this year.