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US economy grows 2.6% in third quarter, but GDP data may overstate strength

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GDP FOR THE THIRD QUARTER KEY POINTS:

  • The US economy returned to growth in the third quarter, expanding by 2.6% year-on-year versus expectations of 2.4%.
  • GDP report points to economic resilience despite rapid tightening of financial conditions, but accounting may overstate underlying forces
  • Today’s data is backward-looking, so it’s unlikely to have a significant impact on the Fed’s tightening roadmap

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After two quarters in a row back to back reductionThe US economy recovered strongly between July and September, driven mainly by the external sector, suggesting that activity remains robust despite the rapid tightening of financial conditions.

Gross domestic product, the broadest measure of goods and services produced in the country, rose 2.6% year-over-year in the third quarter, according to the U.S. Commerce Department, beating expectations for a 2.4% increase and a result that likely , will ease recession anxiety, at least for now.

Drilling down into the report, personal consumption expenditures rose 1.4% after rising 2% earlier, suggesting that consumer resilience is waning but not yet broken, even like high inflation continues to squeeze wallets, eroding purchasing power.

US GDP BRIEF

Source: US Bureau of Economic Analysis

For its part, gross private domestic investment fell 8.5%, with most of the weakness concentrated in the residential subcomponent, which fell 26.4%, weighed down by rising mortgage rates and cooling demand for housing amid growing growth restrictive monetary policy.

At the same time, trade contributed positively to growth, adding 2.7 percentage points to GDP as exports of goods and services outpaced import growth over the period under review. While this is encouraging, it may not last long given the relative strength of US dollar.

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Source: DailyFX Economic Calendar

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All things considered; a strong GDP result may be overblown momentum. Final domestic sales, a key measure of domestic demand, appear to support this assessment. That measure, which excludes variable government spending and inventories, rose just 0.5% after rising 0.2% in the previous quarter, pointing to underlying weakness in the economy.

Today’s data changes little FOMCin the near term, suggesting policymakers are likely to secure another 75 basis point hike at their November conclave in line with current market prices.

However, the outlook for monetary policy after next month’s meeting is less certain as several Fed officials have begun to call for a slowdown in the growth rate of interest rates out of fear that a hawkish tightening cycle could trigger a major downturn at some point in the future.

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— Posted by Diego Colman, DailyFX Market Strategist

https://www.dailyfx.com/news/us-economy-grows-by-2-6-in-third-quarter-but-gdp-data-may-overstate-strength-20221027.html

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