U.S. economy rebounds in Q3 on boost from trade, but demand stalling

The economy bounced back rather strongly during the third quarter and had a shrinking trade deficit. The data was overstated and portrayed the economy as performing better than it actually was. The demand was the lowest it has been in two years due to the high interest rates of the Federal Reserve. The third quarter GDP report showed residential investment for another quarter bringing it to six straight quarters. This is the longest continual stretch since the collapse of the housing market in 2006.

The report showed a substantial decrease in inflation since the second quarter but price pressures continued to increase. The return to growth after two consecutive declines in the GDP gave some evidence that the economy was not in a recession. The risks of a downturn have increased and the Federal Reserve is increasing the interest rates to balance out inflation (some of the highest inflation we have seen in 40 years). A senior economist from BMO Capital Markets in Toronto, Sal Guatieri, believes that the U.S economy is losing steam even though it seems to be doing well. The GDP increased at 2.6% rate in the previous quarter post-contracting 0.6% pace in the second quarter. Economists polled by Reuters had forecasted GDP growth bouncing back at a 2.4% rate with the highest estimates at 3.7% pace and the lowest at a 0.8% pace.

The trade deficit narrowed substantially and exports increased. The smaller trade gap increased GDP growth percentage points by 2.77. The rise in demand was slow. The collected data will not likely have substantial impact on monetary policy. Spending was slowed by a decrease in goods mainly for motor vehicles and food and drinks. Services increased (lifted by healthcare and travel abroad).

Employers remain hesitant to lay off workers that have been difficult to acquire. Companies spent more on capital (especially in transportation) last quarter. Businesses also invested in software. Government expenditures rebounded after 5 quarters of decline. Defense spending led this. Household incomes rebounded at 1.7% pace after decreasing in the second quarter. With slowing demand, retailers are acquiring excess merchandise in their inventories which is causing them to slow production.

https://www.reuters.com/markets/us/us-economic-growth-rebounds-q3-trade-demand-is-slowing-2022-10-27/