US economy grows for first time this year in third quarter

WASHINGTON: The US economy rebounded in the third quarter, government data showed Thursday, in welcome news for President Joe Biden days before midterm elections, though analysts warn of a gloomier path ahead.

Economic issues have become a flashpoint in the United States, with decades-high inflation weighing on growth and squeezing households.

Fears of a downturn have intensified in the world’s biggest economy after two quarters of negative growth, commonly viewed as a strong signal that a recession is underway — a trend that would have global consequences and domestic political costs.

But gross domestic product rose for the first time this year, at an annual rate of 2.6 percent in the July to September period, according to the latest Commerce Department data.

“Our economic recovery is continuing to power forward,” said Biden in a statement, later telling reporters that “things are looking good”.

But he also said that officials need to “make more progress” on bringing down high costs for American households.

On Thursday, mortgage rates surged past seven percent for the first time in two decades according to the Freddie Mac survey, piling further pressure on potential homebuyers.

The better-than-expected GDP performance was helped by strong trade, but housing investment plunged and weaker consumer spending on goods casts a pall on growth as higher prices bite.

Industrial supplies and materials, notably petroleum and products, kept exports robust.

In consumer spending, an increase in services was “partly offset” by a drop in products like motor vehicles and parts, along with food and beverages, data showed.

The leap in exports is “unsustainable,” as a strong dollar and weak global growth will pose constraints moving forward, cautioned Ian Shepherdson of Pantheon Macroeconomics.

A fall in imports that helped net trade also marks a reversal of earlier inventory rebuilding, but that is now over, he said.

“We’re relying on better consumption, rising government spending, and... investment to keep GDP in the black,” he added.

Overall, personal consumption expenditures — a key segment of the economy — grew 1.4 percent, slower than before.

The US economy shrank 0.6 percent in the second quarter, according to revised numbers, after a larger decline in the first three months this year.

Biden has insisted that the economy is on the right path, but analysts warn of risks ahead, as households grapple with soaring prices and draw down on their savings.