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The American economy emerged from a “technical recession” in the third quarter, growing at an annual rate of 2.6 percent, the Bureau of Economic Analysis reported Thursday in its initial July-September reading.
The world’s biggest economy expanded on an annual basis once again after two consecutive quarters of negative growth (-1.6 percent and -0.6 in the first and second quarters, respectively), which is the most common definition of a recession.
The GDP rise reflected increases in exports, consumer spending, non-residential fixed investment and federal, state, and local government spending, which were partially offset by decreases in residential fixed investment and private inventory investment.
But in a more detailed analysis, the BEA, an agency of the US Commerce Department, said many components of the economy are not recovering, noting that consumer spending – which grew 1.4 percent, down from 2 percent in the third quarter – cooled amid persistent high inflation.
Consumer spending accounts for roughly 70 percent of US economic activity.
Americans in the third quarter boosted their spending on services, up 2.8 percent, compared to 4.6 percent growth in the second quarter. But their consumption of goods fell 1.2 percent, compared to a drop of 2.6 percent in the second quarter.
The annual increase in federal government spending in the July-September period mainly reflected more investment in national defense (up 4.7 percent) while state and local government spending (up 1.7 percent) was higher due to an increase in the compensation of state and local government employees.
The main contributors to a big 26.4 percent annual decrease in residential fixed investment were new single-family construction and brokers’ commissions.
The return to growth comes in a context of high inflation and a series of interest rate hikes by the Federal Reserve aimed at bringing down consumer prices.
The positive news on the economy comes less than two weeks before midterm elections in which control of both houses of the US Congress – currently Democratic-led – is at stake.
In a statement, President Joe Biden slammed “doomsayers” who have spent months arguing that the US economy is in recession and blasted congressional Republicans who “have been rooting for a downturn.”
“But today we got further evidence that our economic recovery is continuing to power forward. This is a testament to the resilience of the American people,” he said, adding that inflation – which stood at 8.2 percent for the 12 months that ended in September 2022 – remains his administration’s main economic challenge.
Biden said that while his administration is working to lower consumer prices, congressional Republicans have “a very different agenda – one that would drive up inflation and add to the deficit by cutting taxes for the wealthiest Americans and large corporations.”
According to most polls, the economic situation and high inflation (currently near a four-decade high) are the two factors weighing most heavily on American voters ahead of the Nov. 8 midterms.