The US economy grew much faster than expected in the third quarter, a sign that the Federal Reserve’s battle to cool the economy and fight inflation is having only limited impact.
The Commerce Department’s final reading on Thursday morning showed gross domestic product, the broadest measure of the U.S. economy, grew at an annual rate of 3.2% between July and September. That was above the 2.9% estimate from a month ago. Economists polled by Refinitiv expected GDP to remain unchanged from its previous reading.
The report said the stronger-than-expected reading was due to increases in exports and consumer spending that were partly offset by lower spending on new homes. Consumer spending accounts for more than two-thirds of the country’s economic activity.
U.S. stocks fell on Thursday on fears that stronger-than-expected GDP could prompt the Fed to continue raising rates more than expected in 2023. The Dow Jones lost more than 400 points, or more than 1%, while that the S&P 500 and Nasdaq were both down about 2% in late morning trading.
The Fed has been raise interest rates throughout the year to curb demand for goods and services and reduce inflation. Economists have for some time feared that the Fed’s actions could tip the US economy into recession Next year.
Inflation has cooled in recent readings, but the US economy has remained strong. Some surveys released this week suggest that higher Fed rates are not slowing business or consumer spending.
A recent CFO survey found that the current level of interest rates has not affected their spending plans. And consumer confidence improved in December according to a Conference Board survey, reaching its highest level since April.
A separate report from the Labor Department on Thursday showed jobless claims remained relatively unchanged.
Initial weekly claims for unemployment insurance benefits reached 216,000 for the week ended December 17. The previous week’s total was revised up by 3,000 to 214,000.
Economists expected initial claims to land at 222,000, according to Refinitiv.
Weekly totals for initial claims are hovering around pre-pandemic levels. In 2019, weekly claims averaged 218,000.
Continuing claims, which include people collecting benefits on an ongoing basis, fell slightly to 1.672 million for the week ended Dec. 10. The number of continuing claims from the previous week has been revised to 1.678 million.
The final GDP report is one of the most retrospective readings the government releases, examining the state of the economy nearly three months ago. The current forecast from economists is that growth in the current period will be just 2.4%, significantly slower than Thursday’s reading.