WASHINGTON (AP) \u2014 The nation\u2019s economy expanded at a robust 4.9% annual rate from July through September as Americans defied higher prices,\u00a0rising interest rates\u00a0and widespread forecasts of a recession to spend at a brisk pace.<\/p>\n\n\n\n
The Commerce Department said the economy expanded last quarter at the fastest pace in nearly two years \u2014 and more than twice the 2.1% annual rate of the previous quarter.<\/p>\n\n\n\n
Thursday\u2019s report on the nation\u2019s gross domestic product \u2014 the economy\u2019s total output of goods and services \u2014 showed that\u00a0consumers drove the acceleration, ramping up their spending on everything from cars to restaurant meals. Even though the painful inflation of the past two years has soured many people\u2019s view of the economy, millions have remained willing to splurge on vacations, concert tickets and sports events.<\/p>\n\n\n\n
\u201cThis is just a very resilient economy that continues to take hit after hit and keep on,\u201d said Joseph Brusuelas, chief economist at RSM, a tax and consulting firm.<\/p>\n\n\n\n
Yet the robust growth may prove to be a high-water mark for the economy before a steady slowdown begins in the current October-December quarter and extends into 2024. The breakneck pace is expected to ease as higher long-term borrowing rates, on top of the Federal Reserve\u2019s\u00a0short-term rate hikes, cool spending by businesses and consumers. Economists have projected that growth could slow to an annual pace of just 1.5% in the final three months of this year.<\/p>\n\n\n\n
One sign of the coming slowdown, Brusuelas said, was a 3.8% drop in business spending on new machinery and other equipment last quarter. That pullback likely reflected the higher cost of borrowing to finance such purchases.<\/p>\n\n\n\n
And other key drivers of growth in the July-September period could prove short-lived. They include a surge in stockpiled goods that businesses added to their warehouses and store shelves. The buildup in these inventories accounted for about a quarter of last quarter\u2019s growth from July to September and isn\u2019t considered likely to be repeated.<\/p>\n\n\n\n
An increase in house and apartment construction also boosted growth in the third quarter. But as mortgage rates near 8% and sales of existing homes continue to fall, analysts expect housing to weaken the overall economy in the coming months.<\/p>\n\n\n\n
\u201cWe can already see the drag forming in the final three months of the year,\u201d Brusuelas said.<\/p>\n\n\n\n
In addition, consumers are spending more of their savings \u2014 a drawdown that could eventually weigh on growth. Many, particularly lower- and middle-income Americans, are stepping up their use of credit cards. These cards now carry much higher rates after the Fed boosted its benchmark interest rate to about 5.4%, its highest level in 22 years. Americans, as a whole, saved just 3.8% of their income last quarter, down from 5.2% in the April-June quarter and notably below pre-pandemic levels.<\/p>\n\n\n\n
Several Fed officials acknowledged in speeches last week that the most recent economic data showed growth picking up by more than they had expected. Yet most of the policymakers signaled that they will likely keep their key rate, which affects many consumer and business loans, unchanged when they meet next week.<\/p>\n\n\n\n
Even consumers who are closely watching their budgets, though, are still willing to treat themselves in many cases. Among them is Danielle Gagliano, who was at Kohl\u2019s department store in Ramsey, New Jersey, last week with her 2-year-old son, returning an item and picking up three pairs of pants for her 10-year-old daughter.<\/p>\n\n\n\n
Gagliano, 35, said she has been doing more of her food shopping at ShopRite and discounter Aldi and less at Acme, which she feels is more expensive. And she\u2019s been looking for more discounts.<\/p>\n\n\n\n
Still, Gagliano said she makes room in her budget to go out to dinner with her family a couple times a month.<\/p>\n\n\n\n
\u201cI like to support the local restaurants,\u201d she said.<\/p>\n\n\n\n
A range of factors have helped fuel consumer spending, which accounts for the bulk of the economy\u2019s growth. Though many Americans are still feeling under pressure from two years of high inflation, average pay has outpaced price increases and enhanced people\u2019s ability to spend.<\/p>\n\n\n\n
And inflation\u00a0is steadily easing, Thursday\u2019s report showed. Excluding volatile food and gas prices, core inflation slowed to a 2.4% annual rate in the third quarter, according to the Fed\u2019s preferred measure. That is down from 3.7% in the second quarter to the slowest pace in nearly three years.<\/p>\n\n\n\n
Smaller price increases likely encouraged some people to spend lavishly on both goods and services last quarter. There were some one-time factors that boosted spending, like blockbuster concert tours by Taylor Swift and Beyonce. Fans spent an average of $1,500 on air fares, hotel rooms, and concert tickets to see Swift\u2019s shows, and an average of $1,800 for Beyonce, according to calculations by Sarah Wolfe, U.S. economist at Morgan Stanley.<\/p>\n\n\n\n
Americans, as a whole, also began the year on\u00a0healthy financial footing, according to a report last week from the Fed. The net worth of a typical household jumped 37% from 2019 through 2022. Home prices shot higher, and the stock market rose in the biggest surge on records dating back more than 30 years.<\/p>\n\n\n\n
Even so, consumers are likely reining in their spending in the final three months of the year, and the sluggish housing market is dragging on the economy as well. This month, nearly 30 million people began repaying several hundred dollars a month in student loans, which could slow their ability to spend. Those loan repayments had been suspended when the pandemic struck three years ago.<\/p>\n\n\n\n
Fed Chair Jerome Powell, in a\u00a0discussion last week, said he was generally pleased with how the economy was evolving: Inflation has slowed to\u00a0an annual rate of 3.7%\u00a0from a four-decade high of 9.1% in June 2022. At the same time, steady growth and hiring have forestalled a recession, which was\u00a0widely predicted\u00a0at the end of last year.<\/p>\n\n\n\n
If those trends continue, it could allow the Fed to achieve a highly sought-after \u201csoft landing,\u201d in which it would manage to slow inflation to its 2% target without causing a deep recession.<\/p>\n\n\n\n
Still, Fed officials were surprised by a\u00a0strong government report last week on retail sales, which showed that spending at stores and restaurants jumped last month by much more than expected. Powell has since acknowledged that if the economy were to keep growing robustly, the Fed might have to raise rates further. Its benchmark short-term rate is now about 5.4%, a 22-year high.<\/p>\n","protected":false},"excerpt":{"rendered":"
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