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Strong GDP growth and consumer spending

this Bureau of Economic Analysis It was announced today that the seasonally adjusted annual real GDP growth rate of the United States in the third quarter was 4.9%. This is much higher than the U.S. historical average growth rate of 3.1%.

Annual real GDP growth rate, Q2 1947 to Q3 2023, historical average (3.1%) in blue. Calculated as 400 times the natural logarithm difference between GDP and the previous quarter.

New data will Ecobrowser Recession Indicator Index 3.0%. Despite some instability a year ago, the U.S. expansion has now continued for more than three years.

GDP-based recession indicator index. The values ​​plotted for each date are based only on publicly available GDP data for the quarter after the specified date, with Q2 2023 being the last date shown on the chart. The shaded area represents the NBER’s recession date, which was not used in any way in constructing the index.

Last year’s decline in GDP and rapid rise in interest rates led us to small economic observer Becoming quite worried. Of course, some concerns remain, but he doesn’t seem all that gloomy at the moment.

The biggest factor in strong GDP growth in the third quarter was consumer spending, which may still be partially supported by the cash people accumulated in banks.
COVID-19 Stimulus Plan. Of the 4.9% annual growth rate in the third quarter, 1.3% came from inventory accumulation. But even subtracting changes in inventory, actual final sales grew faster than usual. Residential fixed investment also contributed positively, although 30-year mortgage rates were near 8%.

The Fed’s goal in raising interest rates is to slow the economy enough to lower inflation. Inflation had been falling until this summer. But it has been recovering slowly since then, rising an average of 3.6% over the past 12 months.

Two measures of annual inflation.Above: Natural logarithm of 100 times change in years Overall CPI bottom panel: 400x 3-month change. The blue line corresponds to an inflation rate of 2%.

This is much higher than the inflation level the Fed wants. GDP growth of 5% and unemployment of 3.8% do not sound like a recipe for lowering inflation. Is the Fed done raising interest rates? Our little economic observer wonders.

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