U.S. economy grows 2.6% in third quarter, reversing a six-month slump

The U.S. economy grew a lot during the last quarter but most Americans didn’t notice any improvement

The U.S. economy grew at an annual rate of 2.6 percent in the third quarter, marking its first increase in 2022 and a sharp turnaround after six months of contraction — despite lingering fears that the country is at risk of a recession.

The report on gross domestic product, released Thursday by the Bureau of Economic Analysis, revealed a more upbeat snapshot of the economy less than two weeks before the midterm elections, even as high inflation has proved a persistent problem for Democrats.

“The irony is, we’re seeing the strongest growth of the year when things are actually slowing,” said Diane Swonk, chief economist at KPMG. “There are some real cracks in the foundation. Housing is contracting. The consumer is slowing. GDP is growing, but not for all of the right reasons.”

Financial markets were mixed on the news, with the Dow Jones industrial average up and the Nasdaq down.

Even though consumers bought fewer goods, they continued to spend on health care, which helped lift the reading on GDP, which sums up goods and services produced in the U.S. economy. An increase in government spending at the federal, state and local levels also contributed to the gains.

The biggest boost, though, came from a narrowing trade deficit, with American retailers importing fewer items and exporting more goods as well as services, such as travel. That is a stark reversal from earlier in the year, when the gap between incoming goods and outgoing ones was at its widest on record.

Trade-related benefits, though, are likely to be short-lived. Economists widely expect GDP growth to slow in the coming months as consumers and businesses continue pulling back in the face of rising interest rates and uncertainty. By next year, many are forecasting a more protracted slump and perhaps even a recession.

“The makeup of GDP isn’t necessarily as positive as it looks on the surface,” said Jefferies chief financial analyst Aneta Markowska, who expects a recession in the second half of 2023. “It’s more of a one-time boost than growth that is likely to continue.”

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