GDP will likely show U.S. economy grew in the third quarter, despite inflation

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The US economy is expected to have grown robustly in a strong recovery from the first half of the year, but most Americans are unlikely to notice anything about the turnaround.

Persistent inflation continues to weigh heavily on both economic growth and household budgets, and has become a crucial point ahead of the mid-term elections. A strong reading in the upcoming Gross Domestic Product report, scheduled to be released on Thursday, would be good news for Democrats, who are struggling to convince voters they have a plan to contain rising prices and put the economy on hold. a more stable base.

While the latest numbers likely look like improvements on paper, economists say they don’t reflect major changes in the economy, which could be heading for a recession next year.

“This is going to look better than the previous two GDP reports, but conditions on the ground haven’t changed much,” said Douglas Holtz-Eakin, president of the American Action Forum and former director of the Congressional Budget Office. “Inflation is still taking its toll. Concerns about the Fed tightening remain. Things are not substantially different.”

GDP, the broadest measure of economic activity, is expected to have increased about 2.9 percent between July and September, according to a tracker from the Federal Reserve Bank of Atlanta. This is in line with some of the strongest pre-pandemic years of economic growth.

It comes after six months of contraction, with the US economy shrinking 1.6 percent, then 0.6 percent in the first two quarters of the year. That first-half drop raised fears that the country was already experiencing a recession, although recessions are not typical when unemployment is near record levels. The official determination is made by a panel of experts, and economists generally agree that the US economy has avoided a recession – at least this year.

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The US’s return to growth is in stark contrast to other major economies, including Europe and the UK, which are already in recession or almost certainly heading towards one. China’s “zero-covid” policy has also become a drag on its economic growth, after a long time being one of the main drivers. (China has recently delayed the release of GDP data, obscuring its economic situation.)

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The latest US GDP figures are likely to be supported by a shrinking trade deficit as the US is importing fewer goods as a result of slowing demand. Additionally, retailers’ inventory levels are expected to show stronger growth as pandemic-era supply chain issues are resolved. None of these factors have much influence on Americans’ daily lives.

Economic uncertainty is one of the biggest problems in the November 8 elections, where gun control, abortion rights and immigration are also important. And the stakes are high: Democrats are six seats away from losing control of the House and Senate.

“Don’t be fooled by a GDP recovery,” Joseph LaVorgna, chief economist at SMBC Nikko Securities America and former economic adviser to the Trump White House, wrote in a recent note to clients. “Is the economy out of the woods? Not. The economy often generates healthy gains in real GDP around the onset of recession. In fact, this has happened in four of the last six crises.”

Why the US economy shrank in early 2022

A growing chorus of economists say a recession in 2023 is almost inevitable as the Federal Reserve continues to aggressively raise interest rates in hopes of slowing the economy down enough to control inflation. There are also growing fears that turmoil abroad, in Europe and Asia, could seep into the US economy.

But for now, the economy remains strong by many measures. Unemployment, at 3.5 percent, is near historic lows and many Americans are getting pay raises. Business investment and consumer spending remain strong, even as households and entrepreneurs say they feel pessimistic about their finances and the direction of the economy.

The White House pointed to strong job growth and steady consumer spending – which accounts for nearly 70% of GDP – as promising signs that the economy remains robust.

“If you’re trying to understand the strong growth of the US economy, obviously the job market is a critical contributor,” said Jared Bernstein, a member of the President’s Council of Economic Advisers. “Most people get their income through the job market – it’s about paychecks, not stock portfolios – so if people are working and getting ahead, that will be an important contribution to the economy.”

Economists are keeping a close eye on a key measure that cuts out factors like trade and retailers’ inventory levels. That metric, final sales to private home buyers, offers a clearer picture of US demand and has increased every quarter since the pandemic began. However, growth rates have started to slow this year, suggesting that economic gains are slowing even as GDP increases.

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“Nuance really matters now,” said Andrew Patterson, senior international economist at Vanguard. “If you look at the underlying metrics, household, business and government consumption is consistently trending downwards. We may see positive GDP growth this time, but this is due to a drop in imports rather than higher consumption.”

Biden’s bailout plan worsened inflation, but the economy improved

Reading economic tea leaves, however, is often as much about domestic and business perceptions as it is about the actual numbers. Even with a booming job market and rapid spending, many Americans feel incredibly pessimistic about the economy. Consumer sentiment remains near record lows, with many Americans saying they expect an even tougher road ahead, according to a closely watched index from the University of Michigan.

That sadness is prompting voters across the country to reevaluate their decisions ahead of the midterm elections. Polls consistently show that inflation remains a major issue for many Americans.

In Nashville, Cheryl Beaumont is voting Democrats for governor and Congress, though she says several friends are switching to Republican candidates because of economic concerns. Many are struggling with higher food and gas costs, she said, and don’t feel the current government is doing enough to bring prices down.

“Democrats are still talking about gun safety and abortion, but the real concern for ordinary Americans is, how do I feed my family? How do I pay the rent?” said Beaumont, 52, who handles shipping logistics for a shoe retailer. “They want a plan. People no longer have the luxury of putting principles ahead of inflation.”

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Prices rose 8.2% last year, government figures show, although many necessities such as groceries, gas, utilities and health care have increased considerably. As a result, more Americans are diving into their bank accounts and taking on more credit card debt to survive. Many say they feel a growing sense of desperation as pay rises and pandemic savings are wiped out by inflation.

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Philip Hyatt, who owns a barbecue buffet company in Carson City, Nevada, says recession concerns have led many customers to delay reservations until next year. At the same time, he is facing double-digit price increases on almost everything from spices to ribs, and says he will vote Republican midterm, in part because he feels President Biden hasn’t done enough to deal with the costs. growing.

“A lot of this inflation would happen no matter who was in power,” he said. “But I also see things happening in the White House that are not conducive to getting us through this or alleviating any of those pressures.”

But while voters still say the economy is their biggest concern this fall, there are signs many Americans are starting to feel at least a little better about their finances as gas prices tumble from summer records. .

Republicans have the upper hand on the issues that most concern Americans

Theresa McCloskey, who owns a graphic design and print company near Philadelphia, has been dogged by supply shortages and rising prices. But she says she is more concerned about abortion rights. Though she often votes for candidates from both sides of the aisle, she plans to go squarely with the Democrats this time around.

“Even though as a business person, my job literally puts a roof over my head, I personally believe that my rights as a woman – and the rights of my daughter and nieces – are far more important than anything the economy can throw at me. . “, said the 62-year-old. “I don’t care what things cost. I’ve worked three jobs as a single mother before, and I’ll do it again if I have to to maintain my rights.”

McCloskey, who has avoided dining out and traveling to save money, says he is optimistic about the economy. Schools, car dealerships and other customers continued to shell out business cards, brochures and large banners. Her sales are on track to surpass last year’s by 20%, and she hopes the United States can avoid a recession.

“Inflation is tough right now,” she said. “But if things get more expensive, I’ll either cut more or get another job. I won’t worry just yet.”

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