MADISON, Wis.–Economic growth saw a rebound during the summer, but it will “not last,” according to a CUNA economist.
New data released by the Commerce Department show that gross domestic product, adjusted for inflation, rose 0.6% in the U.S. in the third quarter, a 2.6% annual rate of growth. It was the first increase after two consecutive quarterly contractions, and slightly exceeded forecasters’ expectations, and followed two quarters of declines.
“Exports, which were a key driver of the overall results, reflected a double-digit increase,” said Mike Schenk, CUNA’s chief economist. “Personal consumption, the biggest part of the economy, rose at a 1.4% pace. The report also reflected solid increases in business investment and government spending.
“The rebound was widely expected. CUNA’s baseline economic forecast called for the economy to grow by 2.5% in the third quarter and the consensus estimate amongst economists was 2.3%.
‘Spending, Borrowing to Take Hit’
“Importantly, healthy economic growth will not last. The Federal Reserve’s recent aggressive policy response to stubbornly high inflation virtually guarantees that fourth-quarter output will decelerate – perhaps significantly,” Schenk continued. “The Fed’s laser-focus on bringing inflation down with big increases in the Fed’s short-term market interest rate target has greatly reduced the affordability of a wide range of products and services including homes, autos, and other big-ticket items purchased on credit. Spending and borrowing will therefore undoubtedly take a big hit in the fourth quarter. The end result will be obvious and impactful labor market dislocations.”
NAFCU's Outlook
NAFCU's Chief Economist and VP of Research Curt Long noted that while net exports was a drag on GDP over the first half of the year, it is now keeping GDP afloat."Residential investment took a nosedive as builders reacted to skyrocketing mortgage rates. The labor market remains tight, helping to maintain consumption. However, consumers are leaning ever more on credit, and inflation continues to outpace wage growth," stated Long. "Overall, this was exactly the type of report the Federal Reserve is looking for. Rate sensitive areas are responding to tightening monetary policy, but the rest of the economy is moderating more slowly. PCE inflation dropped from 7.3 percent in the second quarter to 4.2 percent in the third. It is still too early for the FOMC to think about a pivot, but after next week’s 75 basis-point hike, this report would support a mild a step down to a 50-point increase in December.”
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