Economic growth expanded at a 4.9% seasonally adjusted annual rate in the third quarter of this year, the Bureau of Economic Analysis said Thursday in a revised estimate, the strongest growth since the country’s pandemic rebound.
Economic growth in the third quarter was revised down by 0.3 percentage points in the third and final GDP estimate from the previous estimate of 5.2%.
CONSUMER CONFIDENCE BLOWS PAST EXPECTATIONS, SURGES BY MOST SINCE EARLY 2021
The strong third-quarter growth indicates underlying momentum in commerce despite the Federal Reserve keeping interest rates at their highest level in years.
The final estimate is good news not just for the economy but also for the Biden administration, which has been attempting to regain public approval by touting the positive aspects of the economy, such as strong GDP growth, low unemployment, and recent declines in inflation.
The report marks five straight quarters of positive economic growth. The continued expansion bodes well for the prospect of the Fed pulling off a soft landing, in which inflation falls while a recession is avoided.
GDP growth was 2.1% in the second quarter and 2.2% in the first quarter of this year. The Atlanta Fed’s “GDP Now” tracker predicts that GDP growth in the final quarter of this year will be 2.7%.
After over a year of successive interest rate increases, some by very aggressive margins, the Fed has held interest rates where they are since July. Because of recent declines in inflation, the central bank appears poised to pivot to cutting rates, with the first cut expected as soon as the first quarter of next year.
Fed Chairman Jerome Powell and other officials have hinted the era of rate hikes has come to a close, although the Fed is being more cautious than investors in dialing back its hawkish monetary policy. Fed officials penciled in three rate cuts next year, although investors think there will be double as many rate reductions.
Investors now see a nearly 80% probability the Fed will cut rates in or before March, according to the CME Group’s FedWatch tool, which calculates the probability using futures contract prices for rates in the short-term market targeted by the Fed.
The labor market has also remained solid despite the higher interest rate environment. The economy beat expectations again in November and added nearly 200,000 jobs, and the unemployment rate dropped slightly to 3.7%, right around where it was in the months leading up to the pandemic.
Consumer sentiment is also up in recent weeks, something that bodes well for the Fed’s goal of a soft landing.
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The Conference Board’s consumer confidence index rose to 110.7 in December, up from 101 the month before, the group announced on Wednesday. That is the biggest increase since early 2021, and, for reference, economic forecasters predicted it would only rise to 103.8.
“December’s increase in consumer confidence reflected more positive ratings of current business conditions and job availability, as well as less pessimistic views of business, labor market, and personal income prospects over the next six months,” said Dana Peterson, chief economist at the Conference Board.
