The U.S. economy recovered stronger than expected in the third quarter based on the latest report released today. However, higher interest rates as the Federal Reserve fights inflation have increased the risk of a recession next year.
Gross domestic product rose at an annual rate of 2.9%, the preliminary reading for third-quarter GDP. This is the second reading, after being revised from the 2.6% rate reported last month. The economy contracted at a rate of 0.6% in the second quarter.
Economists polled by Reuters had even forecast GDP growth to rise to 2.7%. The upward revision reflected an increase in growth in consumer and business spending.
When measured in terms of income, the economy grew at a rate of 0.3%. Gross domestic income (GDI) contracted at a rate of 0.8% in the second quarter. In principle, GDP and GDI should be parallel, but in practice they are different because they are estimated using different and largely independent sources of data.
Average GDP and GDI, also referred to as gross domestic product and considered a better measure of economic activity, increased at a rate of 1.6% in the July-September period after contracting at a rate of 0.7% in the second quarter.
Profit from current production decreased to $31.6 billion in the third quarter after increasing to $131.6 billion in the second quarter.
With the Fed in the midst of its fastest rate hike since the 1980s, the economy is in danger of slipping into recession as early as the first half of next year. Economists, however, believe any downturn will be short and moderate because of the unprecedented strength of the labor market.
The housing market is collapsing, with residential investment contracting for six straight quarters, the longest stretch since the housing market crash of 2006.
Consumer and business confidence declines, which could affect spending and reduce job growth.
