US 3rd quarter's economic growth revised upward to a 5.2% annual rate

Consumers in America shrugged off higher interest rates, driving the economy to a robust 5.2% annual pace from July through September, as per the government's revised report released Wednesday. This was an upgrade from the initial estimate of 4.9% growth.

However, economists anticipate a significant slowdown in the current fourth quarter due to the cumulative impact of increased borrowing costs on both consumer and business spending. Projections suggest growth might drop to a 1.8% annual rate in the October-December period.

The latest assessment confirmed a sharp acceleration from the 2.1% growth rate in the second quarter (April-June). Notably, the US gross domestic product surged at its fastest quarterly rate in almost two years during the July-September period.

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Consumer spending, crucial for the economy, increased at a 3.6% annual rate in July-September, slightly lower than the previous estimate of 4%. Private investment saw a significant surge of 10.5% annually, including a 6.2% rise in housing investment, defying higher mortgage rates.

The economy also benefited from companies building inventories in anticipation of future sales, contributing 1.4 percentage points to the quarterly growth. Additionally, government spending and investment at various levels—federal, state, and local—played a role in driving growth in the third quarter.

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Despite the Federal Reserve's 11 interest rate hikes since March 2022 to combat high inflation, the US economy has shown resilience. Higher interest rates increased borrowing costs for consumers and businesses but also helped alleviate inflation pressures. Consumer prices rose by 3.2% last month compared to a year earlier, a significant improvement from the 9.1% year-over-year inflation recorded in June 2022.

Although the US job market is cooling compared to the past two years, it remains healthy by historical standards. The average addition of 239,000 jobs per month this year and an unemployment rate below 4% for 21 consecutive months reflect this stability.

The combination of easing inflation and consistent hiring has fueled optimism that the Federal Reserve can achieve a "soft landing." The aim is to raise rates adequately to moderate the economy and control price increases without pushing it into recession.