The US economy grew much faster in the third quarter than previously thought. This shows the limited impact of the Federal Reserve’s attempts to cool the economy to fight inflation.
The Commerce Department’s final readings on Thursday morning showed gross domestic product, the broadest measure of the US economy, grew at an annual pace of 3.2% from July to September. This is up from the estimated 2.9% a month ago. Economists surveyed by Refinitiv expected GDP to remain unchanged from previous figures.
The better-than-expected performance was due to higher exports and consumer spending, partially offset by lower spending on new homes, the report said. Consumer spending accounts for more than two-thirds of the country’s economic activity.
US stocks fell on Thursday on fears that the Fed could continue to raise rates more than expected in 2023 as GDP outperformed expectations. Both were down around 2% in late night trading.
The Federal Reserve (Fed) has raised interest rates throughout the year to cool demand for goods and services and keep inflation in check. Economists have long worried that the Fed’s actions could plunge the US economy into recession next year.
Inflation has fallen in recent numbers, but the U.S. economy remains strong. Several studies released this week suggest that the Fed’s interest rate hikes are not slowing business and consumer spending.
A recent survey of chief financial officers found that current interest rate levels have had no impact on their spending plans. Consumer confidence improved in December, reaching its highest level since April, according to The Conference Board survey.
Additionally, while layoffs are on the rise in some industries, particularly technology, employers continue to hire at a historically strong pace.
A separate Labor Department report on Thursday said unemployment claims were relatively unchanged.
The first weekly claims for unemployment insurance benefits for the week ended December 17 reached 216,000. Last week’s total increased by 3,000 to 214,000.
According to Refinitiv, economists expected the first bill to be 222,000.
Weekly initial billing totals remain at pre-pandemic levels. The average number of weekly claims in 2019 was 218,000.
Continuing claims, including those receiving ongoing benefits, fell slightly to 1.672 million in the week ending Dec. 10. The number of continuous claims for the previous week was revised to 1.678 million.
The GDP final report is one of the most backward-looking indicators released by the government and looks at the state of the economy almost three months ago. Economists now forecast growth of just 2.4% this quarter, much slower than Thursday’s figures.