U.S. GDP Grew 2.6% in Third Quarter


 (Reuters&WSJ) - U.S. economic growth rebounded more than expected in the third quarter amid a continued decline in the trade deficit, but that overstates the economy's health as the Federal Reserve's aggressive interest rate increases curbed consumer spending.

Gross domestic product increased at a 2.6% annualized rate last quarter, the Commerce Department said in its advance GDP estimate on Thursday, ending two straight quarterly decreases in output, which had raised concerns that the economy was in recession.

The economy contracted at a 0.6% pace in the second quarter.

Economists polled by Reuters had forecast GDP growth rebounding at a 2.4% rate. Estimates ranged from as low as a 0.8% rate to as high as a 3.7% pace.

While the economy may not be in recession, the risks of a downturn have increased as the Fed doubles down on rate hikes as it fights the fastest-rising inflation in 40 years. The U.S. central bank has raised its benchmark overnight interest rate from near zero in March to the current range of 3.00% to 3.25%, the swiftest pace of policy tightening in a generation or more.

The report will have little impact on monetary policy, with Fed officials watching September personal consumption expenditures price data and third quarter labor cost numbers due on Friday, ahead of their Nov. 1-2 policy meeting.

The trade deficit narrowed sharply in part as slowing demand curbed the import bill. Exports also increased for much of last quarter. Wild swings in trade and inventories were behind the contraction in GDP in the first half of the year.

Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, slowed to a 1.4% rate from the April-June quarter's 2.0% pace.

Consumer spending is being supported by a strong labor market, which is driving up wages. The Labor Department reported on Thursday a modest increase in the number of people filing new claims for unemployment benefits last week.

Initial claims for unemployment benefits increased by 3,000 to a seasonally adjusted 217,000 for the week ended Oct. 22. Claims have remained significantly low despite reports of companies, mostly in the interest rate-sensitive sectors of the economy, laying off workers.

U.S. worker filings for jobless benefits edged higher last week but remained near historically low levels.

Initial jobless claims, a proxy for layoffs, increased slightly to a seasonally adjusted 217,000 last week from 214,000 the week before, the Labor Department said Thursday. Claims are up from earlier this year but remain near their pre-pandemic 2019 weekly average of 218,000 when the labor market also was historically strong.

The four-week moving average for jobless claims, which smooths out weekly volatility, rose slightly to 219,000 last week.

Continuing claims, a proxy for the number of people seeking ongoing unemployment benefits, increased to 1.44 million in the week ended Oct. 15 from 1.38 million a week earlier. Continuing claims are reported with a one-week lag.

The U.S. job market remains healthy but has shown signs of modest cooling, according to other recent Labor Department reports. Job growth slowed in September, with employers adding 263,000 jobs, down from August’s increase of 315,000 and the monthly average gain of more than 400,000 during the first half of the year.

The unemployment rate fell to 3.5% in September from 3.7% in August, matching a half-century low that was last reached in July, as the number of people in the labor force fell.

Job openings declined in August to their lowest level since the summer of 2021. But many businesses have continued to hire, citing struggles with staffing shortages.

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