WASHINGTON (AP) — The U.S. economy grew at a 2.6% annual rate from July through September, snapping two straight quarters of economic contraction and overcoming punishingly high inflation and interest rates.
Thursday’s estimate from the Commerce Department showed that the nation’s gross domestic product — the broadest gauge of economic output — grew in the third quarter after having shrunk in the first half of 2022. Stronger exports and steady consumer spending, backed by a healthy job market, helped restore growth to the world’s biggest economy.
During an interview with NewsNation, President Biden appeared to be pleased with the report.
“There’s nothing bad about the report. The core inflation’s actually down about a point and a half. We’re in a situation where we’ve created more jobs. Look, the price of gasoline’s falling. The price of gasoline in the last several months is down $1.26 or $1.27. If the oil companies charge what they should be charging based on the cost of a barrel of oil, it’d be down another 40 cents. I’m going to keep pushing until they get it down,” Biden said.
When asked what his message would be to many who believe gas prices are still steep, the president replied: “My message is we’re getting them down. I told you I’d bring them down. We’re bringing them down.”
Still, the outlook for the economy has darkened. The Federal Reserve has aggressively raised interest rates five times this year to fight chronic inflation and is set to do so again next week and in December. Chair Jerome Powell has warned that the Fed’s hikes will bring “pain” in the form of higher unemployment and possibly a recession.
The government’s latest GDP report comes as Americans, worried about inflation and the risk of recession, have begun to vote in midterm elections that will determine whether President Joe Biden’s Democratic Party retains control of Congress. Inflation has become a signature issue for Republican attacks on the Democrats’ stewardship of the economy.
With inflation still near a 40-year high, steady price spikes have been pressuring households across the country. At the same time, rising interest rates have derailed the housing market and are likely to inflict broader damage over time. The outlook for the world economy, too, grows bleaker the longer that Russia’s war against Ukraine drags on.
Last quarter’s U.S. economic growth reversed annual declines of 1.6% from January through March and 0.6% from April through June. Consecutive quarters of declining economic output are one informal definition of a recession. But most economists have said they believe the economy skirted a recession, noting the still-resilient job market and steady spending by consumers. Most of them have expressed concern, though, that a recession is likely next year as the Fed steadily tightens credit.
Preston Caldwell, head of U.S. economics for the financial services firm Morningstar, noted that the economy’s contraction in the first half of the year was caused largely by factors that don’t reflect its underlying health and so “very likely did not constitute a genuine economic slowdown.” He pointed, for example, to a drop in business inventories, a cyclical event that tends to reverse itself over time.
Higher borrowing costs have weakened the home market, in particular. The average rate on a 30-year fixed-rate mortgage, just 3.09% a year ago, is approaching 7%. Sales of existing homes have fallen for eight straight months. Construction of new homes is down nearly 8% from a year ago.
Still, the economy retains pockets of strength. One is the vitally important job market. Employers have added an average of 420,000 jobs a month this year, putting 2022 on track to be the second-best year for job creation (behind 2021) in Labor Department records going back to 1940. The unemployment rate was 3.5% last month, matching a half-century low.
“What’s happening is there’s real movement. We’re in a better position than any major country in the world. Our economy’s growing, and it’s still in a place where it’s leveling out in rational means,” President Biden told NewsNation.
Hiring has been decelerating, though. In September, the economy added 263,000 jobs — solid but the lowest total since April 2021.
International events are causing further concerns. Russia’s invasion of Ukraine has disrupted trade and raised prices of energy and food, creating a crisis for poor countries. The International Monetary Fund, citing the war, this month downgraded its outlook for the world economy in 2023.