US economic growth for the fourth quarter was revised to an annual rate of 5.2 percent

US economic growth for the fourth quarter was revised to an annual rate of 5.2 percent

A shopping cart is seen in a supermarket as inflation takes a toll on consumer prices in Manhattan, New York City, US, June 10, 2022. REUTERS/Andrew Kelly

WASHINGTON (AP) — Ignoring rising interest rates, American consumers spent enough to help push the economy to a brisk annual pace of 5.2 percent in the July-September period, the government said Wednesday in an upgrade from its previous estimate.

The government had previously estimated that the economy grew at an annual rate of 4.9 percent in the last quarter.

However, in the current fourth quarter, economists say growth is likely to slow sharply due to the cumulative effects of higher borrowing rates on consumer and business spending. For example, TD Economics expects October-December growth to reach an annual rate of 1.8 percent.

The second growth estimate released on Wednesday for the July-September quarter confirmed that the economy accelerated sharply from its rate of 2.1 percent in the April-June period. It showed that U.S. gross domestic product — total production of goods and services — grew at its fastest quarterly rate in nearly two years.

Read more: The labor index remains resilient despite job growth slowing last month

Consumer spending, the lifeblood of the economy, rose at an annual rate of 3.6 percent in the July-September period — still healthy but lower than the previous estimate of 4 percent. Private investment rose at an annual pace of 10.5 percent, including a 6.2 percent increase in housing investment, challenging rising mortgage rates.

The economy also received a boost from companies building inventories in anticipation of future sales, adding 1.4 percentage points to quarterly growth. The third quarter growth was also driven by an uptick in spending and investment by governments at all levels – federal, state and local.

The US economy, the world’s largest, has proven resilient even as the Federal Reserve has raised its benchmark interest rate 11 times since March 2022 to fight the worst bout of inflation in four decades. These high interest rates have dramatically increased consumer and corporate borrowing costs. But it also helped ease inflationary pressures: consumer prices rose 3.2% last month compared with 12 months earlier, a marked improvement from the 9.1% year-on-year inflation rate recorded in June 2022.

The labor market in the United States is witnessing a slowdown after the hot levels it reached during the past two years. But it’s still healthy by historical standards: Employers are adding an average of 239,000 jobs a month this year. The unemployment rate has fallen below 4% for 21 straight months, the longest such period since the 1960s.

The combination of easing inflation and flexible hiring has raised hopes that the Fed can manage a so-called soft landing — raising interest rates enough to cool the economy and tame price increases without pushing the economy into recession.

“We continue to expect a continued expansion in economic activity, but the pace should slow significantly” in the current fourth quarter, said Rubeela Farooqi, chief US economist at High Frequency Economics. “We expect a slowdown in household spending, not only because of the unusually strong third quarter but also because of the cumulative effects of monetary policy tightening.”

The Organization for Economic Co-operation and Development predicted on Wednesday that the US economy will grow by just 1.5% in 2024, down from 2.4% in 2023, with the Federal Reserve’s interest rate increases – 11 of them since March 2022 – continuing to constrain growth.

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A shopping cart is seen in a supermarket as inflation takes a toll on consumer prices in Manhattan, New York City, US, June 10, 2022. REUTERS/Andrew Kelly

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