WASHINGTON: The US economy grew faster than initially thought in the third quarter, but momentum appears to have since waned as higher borrowing costs curb hiring and spending.
Gross domestic product increased at a 5.2% annualized rate last quarter, revised up from the previously reported 4.9% pace, the Commerce Department’s Bureau of Economic Analysis said in its second estimate of third-quarter GDP. It was the fastest pace of expansion since the fourth quarter of 2021.
Economists polled by Reuters had expected GDP growth would be revised up to a 5.0% rate. The economy grew at a 2.1% pace in the April-June quarter and is expanding at a pace well above what Federal Reserve officials regard as the non-inflationary growth rate of around 1.8%.
The upward revision to growth last quarter reflected upgrades to business investment as well as state and local government spending. Residential investment was also revised higher as was private inventory investment. But growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, was lowered though to a still-solid 3.6% rate. It was previously estimated to have increased at a 4.0% rate.
Consumer spending appears to have cooled significantly at the start of the fourth quarter, with retail sales falling for the first time in seven months in October. The labor market is also easing. Job growth slowed last month and the unemployment rate rose to nearly a two-year high of 3.9%.
Slowing demand has raised optimism that the Federal Reserve was probably done raising interest rates this cycle, with financial markets even anticipating a rate cut in mid-2024.
Since March 2022, the U.S. central bank has raised its benchmark overnight interest rate by 525 basis points to the current 5.25% to 5.50% range.
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