GDP surges past expectations in Q3, recession less likely

GDP surges past expectations in Q3, recession less likely

Gross domestic product (GDP) in the third quarter of 2023 increased at more than twice the rate of growth in the previous quarter, once again beating the odds of a recession, according to the Bureau of Economic Analysis (BEA). 

Real GDP increased at an annual rate of 4.9% for the July-through-September period after rising 2.1% in the second quarter this year, according to the BEA’s advance estimate released Thursday. Economic forecasts had called for a 4.7% acceleration in GDP for the third quarter of 2023. The increase in economic growth comes as the Federal Reserve has raised interest rates 11 times since March of last year, pushing the federal funds rate to a 22-year high of 5.25% to 5.5% in a bid to slow the economy and lower soaring inflation. 

The increase in real GDP reflected increases in consumer spending, private inventory investment, exports, state and local government spending, federal government spending and residential fixed investment, partly offset by a decrease in nonresidential fixed investment, the BEA said. The increase in consumer spending reflected increases in both services and goods. 

“There are two factors contributing to this strong growth,” MBA SVP and Chief Economist Mike Fratantoni said in a statement. “First, consumer spending on goods and services remained quite strong. Some of the strength is due to a big increase in spending on durable goods as well as a pickup in estimated spending on housing and utilities. 

However, this spending rate is not likely to be sustainable over time as the excess savings consumers saved during the pandemic continue to drop and wage gains decelerate, according to Fratantoni. 

“We are now seeing some consumer stress in the rising delinquency rates for credit cards and auto loans,” Fratantoni said.

The other growth driver was a significant increase in private inventories, which Fratantoni said can often be reversed in the following quarter and is likely to contribute to slower growth in the fourth quarter.

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GDP surges past expectations in Q3, recession less likely | Fox Business