U.S. Growth Defies Recession Amidst Recession Fears

Amidst lingering fears of a looming recession, the United States economy has showcased a surprising narrative. The recently released data for the third quarter of 2023, reported by the U.S. Bureau of Economic Analysis (BEA), illustrates a remarkable surge in the Real Gross Domestic Product (GDP), defying the expected slowdown. This article, ‘U.S. Growth Defies Recession Amidst Recession Fears,’ navigates through the intricate details of the economic landscape, revealing a paradoxical blend of robust growth and underlying concerns, painting a vivid picture of the economic trajectory and the challenges that lie ahead.

U.S. Bureau of Economic Analysis (BEA) Report

On Thursday (i.e., 26^th October 2023), the U.S. Bureau of Economic Analysis (BEA), Released its “Advance Estimates” for the third quarter of 2023. According to BEA’s press release, the Real Gross Domestic Product (GDP) increased by 4.9 percent at an annual rate. In the Second Quarter, real GDP increased by 2.1 percent. The Press Release stated that an increase in the third-quarter GDP is due to an increase in consumer spending and inventory investment. Imports in the third quarter also increased. 

It also stated that the GDP estimate for the Third Quarter is based on source data that are incomplete or subject to further revision by the source agency. The “Second Estimate” for the third quarter will be released on November 29, 2023, which will be based on more complete data,

The GDP has exceeded all the forecasts and showed the strongest growth since the fourth quarter of 2021. It defying all the odds of a slowdown prompted by the increase in interest rates by the Federal Reserve. 

GDP Growth – Annual Rate:

The acceleration in Real GDP in the third quarter, compared to the second quarter, is due to an increase in consumer spending, private inventory investment and federal government spending along with an increase in exports and residential fixed investment. These increases are balanced by the partial decrease in nonresidential fixed investment and a slowdown in state as well as local government spending. Imports increased in the third quarter.

• The increase in consumer spending is due to an increase in both goods and services. 
• The leading contributors in Services were housing & utilities, health care, financial services & insurance, and food services & accommodations.
• Among the Goods, the leading contributors to the increase were other nondurable goods (led by prescription drugs) as well as recreation and vehicles.
• The increase in private inventory investment is due to an increase in manufacturing and retail trade.
• Within nonresidential fixed investment, a decrease in equipment was partially compensated by the increase in intellectual property products and structures.

Gross Domestic Purchase Prices: 

In the third quarter, the prices of goods and services purchased by U.S. residents increased by 3.0 percent compared to an increase of 1.4 percent in the second quarter. Core inflation (i.e. excluding food and energy prices) increased by 2.7 percent compared to 2.1 percent in the second quarter.

In the third quarter, Personal consumption expenditures (PCE) inflation was at 2.9 percent compared to 2.5 percent in the second quarter. The PCE Core Price index (i.e. excluding food and energy) increased by 2.4 percent compared to an increase of 3.7 percent in the second quarter.

Personal Income And Saving:

Real disposable personal income (DPI) i.e., personal income adjusted for taxes and inflation, has decreased by 1.0 percent in the third quarter compared to an increase of 3.5 percent in the second quarter.

In the Third Quarter, at current-dollar, an increase in DPI is mainly due to increases in compensation, proprietors’ income, personal income receipts on assets, and rental income of persons, partially balanced by an increase in personal current taxes, which is subtraction in the calculation of DPI.

• The leading contributor to the increase in compensation was private wages and salaries, based primarily on BLS CES data.
• The leading contributor to the increase in personal income receipts on assets is interest income which was partially balanced by a decrease in dividend income.

In the third quarter, the Personal Saving rate was 3.8 percent compared with 5.2 percent in the second quarter.

Is Recession Avoided?

The Third Quarter GDP is the highest since the fourth quarter of 2021. PCE core Index has come down and many sectors are doing good. So does it mean the U.S. has avoided the recession? The answer is NO, not yet. This acceleration of activity in the economy may be brief. 

Though the growth rate of the third quarter is hot and welcoming there is still a lot to do as well as to handle from the policy side. One welcoming factor in all the 3 quarters’ data is the consumer spending spree. 

In fact, this third quarter data offers mixed signals for the Federal Reserve for its policymaking which is scheduled for next week. Though growth is torrid, the inflation was slightly lower than expected. This indicates that inflation may have become weaker in recent months than expected or understood earlier. 

If one pays attention to the data then it can be understood that there is a rundown in savings. There are other factors which add to worries for the last quarter such as the resumption of mandatory student loan payments and the need to refinance maturing corporate debt with higher interest rates.

Interest rates are already impacting all corners of the economy. It impacts businesses, governments/ fed, households etc.., in simple it is affecting the overall economy. Due to high interest rates cost of credit is high, mortgage rates are decadal high, the commercial real estate market is also shaky and also Government’s interest payments on debts are also piling up. 

U.S. Growth Defies Recession Amidst Recession Fears – Our Perspective/Conclusion

The geopolitical tensions may add a burden to the economy. Already the UK and Eurozone are on the cusp of recession – though not entered into it. Adding to this the Israel and Ukraine war is going to be more of a headache along with high gas prices and a shaky stock market.  So, given the data as well as economic conditions along with the global scenario we cannot entirely dismiss the possibility of a looming threat of a recession. The year 2024 is, therefore, going to be more challenging not only for the policymakers but also for the U.S. Economy as a whole.

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