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Hot GDP printing does not mean that the US economy is out of the woods

The US economy grew at its fastest pace in nearly two years over the past three months as consumers increased their spending despite the high interest rate environment.

But an increase in activity does not necessarily mean that the economy is accelerating, according to economists.

“The 4.9% annual jump in GDP in the third quarter and the strength of the monthly data through September means that a recession is now unlikely to start before the end of the year, as we did in our baseline,” the president of Oxford Economics wrote. American economist Michael Pierce. “However, much of this strength has been driven by a sharp decline in the saving rate, a strong rise in government spending and a jump in inventory accumulation, all of which will not last.”

“There are also signs that monetary tightening is affecting investment spending, and as financial conditions continue to tighten, we still expect a sharp decline over the next quarter,” the economist warned, adding that the bulk of this weakness is likely to appear in the first half of the year. . 2024.

EY chief economist Gregory Daco agreed, writing in a note on Thursday, “While these signs of economic strength will fuel speculation that the economy is accelerating again, we do not expect this strong momentum to continue.”

“The recent rapid tightening of financial conditions caused by rising bond yields represents a material headwind to business investment and consumer spending,” the analyst added. Combined with “tightening credit conditions, the resumption of student loan payments, certainty regarding the delayed impact of monetary policy and a fragile global economic backdrop, real GDP growth is likely to drift below trend for several quarters. We expect real GDP growth at a weak 1.4 percent.” . % in 2024 after expected growth of 2.4% in 2023.

The GDP figure will be among the data the Federal Reserve will consider at its policy meeting scheduled next week.

“Although this is not good news for the Fed, the fact that the deflation process continues on a year-ago basis may ease some of the pressure,” Raymond James chief economist Eugenio Aleman wrote.