ARLINGTON, Va.—This week’s eye-popping numbers on U.S. economic growth are not necessarily an indicator the Fed will boost rates when it next meets in December, unless new data show inflation continues to rise, according to one credit union economist.
As the Commerce Department reported, U.S. economy grew 4.9% in the third quarter of 2023.
“GDP soared in the third quarter, putting to bed any immediate fears of recession,” said NAFCU Vice President of Research and Chief Economist Curt Long. “Details were strong, although much of the growth was concentrated in business inventories, which is unlikely to continue growing at such a strong pace. Increased consumption of both goods and services during the vacation season fueled growth. According to the Federal Reserve's Household Spending Survey, 33% of households spent money on vacations and 26% spent money on home repairs in the third quarter, both of which were record highs for the survey dating back to 2015.”
Personal Consumption Up
The Commerce Department data show personal consumption contributed 2.69 percentage points to overall GDP growth, followed by private inventories (+1.32 percentage points).
The Personal Consumption Expenditures (PCE) Price Index, the Fed's preferred inflation metric, was 2.9% in the third quarter while core PCE inflation (excluding food and energy) was 2.4%.
Real disposable income decreased 1% on an annualized basis in the third quarter and the personal saving rate decreased 1.4% to 3.8% – still well below the pre-COVID rate of 7%, Long said.
“Government spending accounted for 0.8 percentage points of overall growth, with state and local spending making up half that growth, while defense spending dominated at the federal level. Despite strong spending, core PCE inflation dropped to 2.4% during the quarter, which is in the neighborhood of the FOMC’s 2% target. NAFCU believes that the Fed is unlikely to raise rates further unless inflation picks up, but strong economic returns will support a higher-for-longer posture,” Long concluded.
Other Views
Dr. Elliott Eisenberg, the economist who is a popular speaker at credit union events and via virtual presentations, said in his daily email that the economic data has been defying slowdown predictions.”
“Consumer spending, inventory growth, net exports, government spending, and residential investment were all strong,” stated Eisenberg. “But this cannot continue. Consumer spending will slow as consumers have been drawing down savings, ramping up credit card use and now paying off student loans, and government spending will, at best, be flat.”