U.S. GDP accelerated at 2.6% pace in Q3, better than expected as growth turns positive

According to the Bureau of Economic Analysis, the U.S. economy posted its first period of positive growth in the third quarter.

GDP, a sum of all the goods and services produced from July through September, increased at a 2.6% annualized pace. That was better than the forecast of 2.5%.

The National Bureau of Economic Research considers downturns and expansions to be the arbiters of downturns and expansions.

The narrowing of the trade deficit was seen as a one-off occurrence that won't be repeated in the future.

Consumer spending, nonresidential fixed investment, and government spending all increased in GDP. The shift to services spending over goods was reflected in the report as spending on the former increased by 2.8%.

The gains were offset by declines in residential fixed investment and private inventories.

The 2.6% rebound in the third quarter more than reversed the decline in the first half of the year and we don't expect this strength to be sustained. Domestic demand will be crushed by higher interest rates as exports fade. The economy is expected to go into a mild recession in the first half of next year.

The markets were higher after the release, with the DJIA gaining more than 300 points in early trading.

Unemployment claims rose to 217,000 but were still below expectations. The 0.4% increase in long- lasting goods orders in September was below expectations.

policymakers are fighting a pitched battle against inflation which is running around its highest levels in more than 40 years There are a number of factors that have contributed to the price surge, some of which are related to the Covid epidemic.

The economy was showing signs of slowing in key areas, particularly the consumer and private investment.

Consumer spending as measured through personal consumption expenditures increased at a 1.4% pace in the third quarter, down from 2% in the second quarter. After falling 14.1% in the second quarter, Gross Private Domestic Investment fell 8.5% in the third quarter. Residential investment fell in the second quarter after falling in the first.

Exports, which add to GDP, increased by 14.4% while imports, which subtract, decreased by 6.9%.

There was some positive news on inflation.

The chain-weighted price index, a cost-of-living measure that adjusts for consumer behavior, rose 4.1% for the quarter. The personal consumption expenditures price index decreased sharply from the prior quarter. The increase in core prices was in line with expectations.

The Fed began raising interest rates in order to tame inflation. The central bank's benchmark borrowing rate has gone up by 3 percentage points since March, taking it to its highest level since the beginning of the financial crisis.

The increases are meant to slow the flow of money through the economy and tame a jobs market where openings outnumber available workers by 2 to 1, a situation that has driven up wages and contributed to a wage-price spiral that economists fear will tip the U.S. into recession.

Our concern about going into a recession wouldn't be from this data. It comes from how much the Fed raises rates and what happens when firms and consumers respond.

The most positive thing is that you still have consumer spending, you still have job growth and wage growth, and that should help on the consumer spending side. Businesses in their hiring would be the most concern for us.

The Fed is widely accepted to approve a fourth consecutive 0.75 percentage point interest rate hike at its meeting next week, but then may slow the pace of increases afterwards as officials take time to assess the impact of policy on economic conditions

The BEA will release a report Friday that will include personal consumption expenditures prices for September. Core prices, which exclude food and energy, are expected to have risen 5.2% from a year ago and 0.5% from a month ago.