US economy surprises with strong summer quarter
America’s GDP is growing at an astonishing rate. However, experts expect a slowdown in the fourth quarter.
The upward revision in the growth number reflected higher business investment.
Image: Natalie Forbes/Getty Images
Despite tight monetary policy, the economic engine in the US woke up stronger than expected in the summer. Gross domestic product (GDP) rose an annualized 5.2% from July to September, the US Commerce Department reported on Wednesday in its second estimate. Initial figures say only 4.9%. Experts polled by Reuters now expect a 5.0% figure, up from 2.1% in the spring. However, economists expect the economy to cool significantly in the fourth quarter.
U.S. Monetary Policy Committee chairman Christopher Waller, who has opened discussions about a Federal Reserve interest rate cut next year, estimates a “one to two percent” increase in the current quarter. The jump in growth in the summer may be an outlier.
The upward revision in the growth number reflected higher business investment and government spending. However, at 3.6%, consumers did not increase their spending as much as initially reported. Initial estimate is 4.0%.
According to economists at Deutsche Bank, the US economic outlook could worsen further next year: they expect the US economy to slip into a “slight recession” in the first half of 2024. Consumers, who fueled growth over the summer with their spending appetite, are more likely to keep their money. Top economists at Deutsche Bank said the central bank would have “plenty of scope” to cut interest rates in this scenario if inflation also falls.
The central bank has not touched interest rates for two consecutive meetings. Monetary authorities kept the key monetary policy rate at 5.25% to 5.50% earlier in the month. After an aggressive series of hikes you now want to be more cautious. Financial markets expect a break in interest rates that will last several months, followed by the first possible downward monetary policy move.
Reuters
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