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US economy grew faster than forecast in third quarter

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US economy grew faster than forecast in third quarter

Robert Besser
03 Dec 2023, 16:09 GMT+10

  • As businesses built more warehouses and accumulated machinery equipment, the U.S. economy grew faster than initially forecast in the third quarter
  • However, higher borrowing costs that reduced hiring and spending slowed the pace of growth, which was the quickest in nearly two years but exaggerated economic performance last quarter
  • When measured in terms of income, economic activity only increased at a moderate pace

WASHINGTON D.C.: As businesses built more warehouses and accumulated machinery equipment, the U.S. economy grew faster than initially forecast in the third quarter.

However, higher borrowing costs that reduced hiring and spending slowed the pace of growth, which was the quickest in nearly two years but exaggerated economic performance last quarter.

When measured in terms of income, economic activity only increased at a moderate pace.

A Commerce Department report released this week indicated that the U.S. economy continued to grow despite predictions of a recession persisting since late 2022.

“No sign of darkening skies for the economy in today’s report, but growth is cooling. There is simply not as much wind in the economy’s sails in the final quarter this year,” said Christopher Rupkey, chief economist at FWDBONDS in New York.

In its second estimate of third-quarter GDP, the Commerce Department’s Bureau of Economic Analysis (BEA) said gross domestic product (GDP) increased at a 5.2 percent annualized rate last quarter, uprated from the previous pace of 4.9 percent, the fastest rate of expansion since the fourth quarter of 2021.

Economists polled by Reuters forecasted GDP growth to be revised up to a 5.0 percent rate.

Personal income was higher than initially estimated, accounting for most wage rises, while the savings rate was raised to 4.0 percent from 3.8 percent.

Economic activity only increased at a moderate pace when measured in terms of income.

In the second quarter, gross domestic income (GDI) increased at a rate of 0.5 percent, but it contracted at a 0.2 percent pace on a year-on-year basis, the first decline in three years.

Conrad DeQuadros, senior economic advisor at Brean Capital in New York, said, “The only time the economy measured by incomes has declined at this pace and was not in recession was in the third quarter of 2007. A recession began in the next quarter.”

In principle, GDP and GDI should be equal, but they differ in real terms as different and largely independent data sources are used to estimate them. After narrowing when the BEA implemented its annual benchmark revisions in September, the gap between GDI and GDP has re-widened.

A report from the Federal Reserve showed that economic activity slowed from early October through mid-November, “with four districts reporting modest growth, two indicating conditions were flat to slightly down, and six noting slight declines in activity.”

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