The US economy returned to strong growth in the third quarter. The Gross Domestic Product (GDP) rose 2.6% between July and September, after two quarters of decline (1.6% from January to March and 0.9% between April and June), but perhaps many Americans are not aware of this change in trend, punished by inflation and the increase in interest rates, while analysts continue to see a recession outlook for next year.
The registered increase, after six negative months, is located in the high zone of the forecasts, which reached 2.9% in the prediction of the Federal Reserve Bank of Atlanta, and above the forecast of ‘Dow Jones’ ( 2.3%). The New York stock market shot up more than 200 points as soon as the improvement was known and the return to the positive percentage.
In addition, this data is a breath of fresh air for the Biden administration, which maintains that the rise in prices would have been much worse if the Republicans’ economic policies were applied. This is how the president was going to defend this Thursday in a speech during his visit to Syracuse (state of New York), in which he intended to convince voters, facing the mid-term elections in less than two weeks, of that the actions taken by your executive are beginning to prove successful.
His government has been fighting that the economy is not in recession. Stringing together two negative reports fits the technical description of a recession, or at least it’s a strong recession signal that ignites all fears. Several analysts supported that view of the government, stating that the contraction in the first half of 2022 was caused by factors that do not reflect the true economic health and, therefore, did not constitute a genuine setback. Among these anomalous factors was the drop in business inventories, a cyclical event that tends to reverse itself and generally does not reflect the state of the economy.
This argument also works for those who see a somewhat artificial positive trend reversal. The economic revival is due in part to the fact that consumers are still spending significantly, although there is a slowdown, and to a resistant labor market, with unemployment at the lowest historical levels. But the improvement is largely sustained by the decrease in the trade deficit (imports fall), and by the adjustment of the level of inventories (businesses make fewer orders), circumstances that experts bet will be difficult to repeat in coming quarters.
So this third quarter shows a mix of contradictory signals, given that inflation remains at the highest levels in four decades and the Federal Reserve (Fed or US central bank) has every intention of maintaining the increase in the price of money at its November meeting, largely focused on cooling down labor hiring and repressing consumption.
This is reason for Goldman Sachs to make the prediction that there is a 35% chance that the US economy will enter a recession in the next twelve months, while Wells Fargo specifies that mild recession scenario for early 2023 or in the second quarter of next year.
