The US economy grew Q3 2022, but that might not stop a recession

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The US economy grew at a pace of 2.6% in the 2022 third quarter. That might not be enough to stop a recession.

The latest economic data is weird. Again.

The latest gross domestic product growth number, a common indicator of broad-based economic activity, shows the U.S. economy grew again in the third quarter. The new report says the U.S. economy grew 2.6 percent on an annualized basis.


Hear more about this story from Matthew Zeitlin:




For the first half of the year, GDP growth said that the economy shrunk, meeting a common shorthand (but not the formal) definition of a recession. But while the headline GDP numbers fell, the economy was still clearly chugging along. Job creation was quite high, and other underlying measures of growth were still positive.

But portions of the GDP report released on Thursday arguably showed a recession is more likely than the data indicated earlier in the year.

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“We’re not in a recession,” Stephen Miran, Amberwaves Partners co-founder and former Treasury Department official, told Grid, “Nevertheless the core domestic demand is really treading water.”

Some of these numbers are just weird

With the first reading of GDP in the third quarter, things have gotten stranger.

Commerce Department data indicates economic growth was boosted by extremely high net exports, which were negative in the beginning of the year and are often a volatile portion of the GDP figures.

“Developments like government spending, companies rebuilding their inventories and exports to other countries can change GDP without necessarily reflecting demand,” the Roosevelt Institute’s Mike Konczal told Grid. These figures tend to be both highly volatile and don’t necessarily move in the same direction — or predict — levels of consumption and investment.

The current economic slowdown is real

At the same time, however, private spending and investment has slowed to nearly zero.

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“Final sales to private domestic purchasers,” which measures private spending on goods and services and investment, was just only barely above zero in the third quarter, compared to rising 2.1 and 0.5 percent annualized in the first and second quarters when GDP was technically negative.

“In the first quarter, the core domestic economy was still quite strong; in the second quarter, there was a real deceleration; and that deceleration has gotten worse,” Miran said. “The economy is not yet in a recession, [but] it’s really treading water, it’s in a place where it’s more vulnerable. And likely to tip the economy into a recession.”

The Federal Reserve’s rate hikes are having a profound effect on the economy

This latest report also showed the effects of the Federal Reserve’s dramatic hikes in interest rates. While they have not yet wrenched inflation down or caused unemployment to rise, they have had a major effect on sectors that are quite sensitive to interest rate hikes, namely housing.

“Residential investment subtracted 1.37 percentage points off of 3rd quarter GDP growth,” Freddie Mac Deputy Chief Economist Len Kiefer tweeted. Residential investment fell by more than a 25 percent in the third quarter at an annualized rate after falling by almost 18 percent in the second quarter.

“The Federal Reserve wants the economy to slow its rate of growth to reflect declining demand without outright crashing into a recession,” Konczal said. “Look more narrowly at what consumers are buying and firms are investing, what economists call final private domestic demand. And there you see consumption, what people are buying, slow its rate of growth to what a trendline would have predicted before the pandemic.

“You also see firms investing less, which, while bad for the long-term, reflects cooling demand in the here and now,” Konczal concluded.

Thanks to Lillian Barkley for copy editing this article.

  • Matthew Zeitlin
    Matthew Zeitlin

    Domestic Economics Reporter

    Matthew Zeitlin is an economics reporter at Grid focused on the domestic impact of major stories such as coronavirus, the supply chain and economic volatility.

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