The US economy has surpassed expectations by hitting an expected scorecard of about 2.9 percent, which is a revision from the expected 2.6 percent growth in GDP reported earlier. The third quarter is the biggest push the US GDP has had since January. During the period, people spent more on recreational activities, which boosted the services sector that makes up the bulk of the US economy.
Positive revisions such as the ones noted over the Christmas period tell an extraordinary story of the direction the US economy will take come 2023. To have a critical understanding of what is GDP, the US economy has maintained an impressive outlook of the 3 percent mark in the last quarter, which is a significant leap in a year rife with growing inflation and rising interest rates. In the last quarter, the economy will grow by about 1 percent, meaning that the US is yet to enter a recession.
Inflation in the US
While the US is not unique in reporting record levels of inflation in 2022, some issues, especially COVID, played a significant part. After COVID, people had a significant amount of money to spend after the lockdowns ended. The rapid increase in demand for goods and services significantly raised the cost of production in the US and other parts of the world where the US sources goods and services.
COVID also disrupted logistics in the better parts of the world, making suppliers unable to bring goods quickly to the consumer. Increased demand for goods when COVID limitations ended meant that logistic companies had to scale quickly—a situation not feasibly possible.
Increased demand for goods and services also pushed businesses to increase the cost of their goods and services to meet their financial goals.
Periods of high inflation often spur unrest within the working class, who feel that the new situation will mean a lower quality of living. Expectations of higher cost-of-living push workers to ask for more money, which has a significant effect on the overall inflation of a country.
Contributors to US Economy
The largest factor that helped the US economy reach significant economic levels in a year rife with negativities, as the ones reported in the third quarter economic outlook, is the drop in trade deficits over the same period. Lower deficits play a significant role in growing the economy.
On the corporate front, big businesses have reported impressive profits in their third-quarter results, which have also worked for the US GDP to remain at a constant rate.
Technical issues also played a part in slowing the economy in the first two quarters of 2022. In addition, the aggressive increase in interest rates to control inflation has increased the chances of the US economy going into recession before the end of 2022 or early 2023.
Fears of Recession in the US
Fears of a recession in the US neared zero in mid-2020 when COVID was at its peak. About two years later, the confidence levels of a recession hit about 30 percent when inflation was at an all-time high in the United States. In September 2022, the chances of the US economy going into a recession became almost certain, with experts expecting one in 2023.
However, the recent growth of about 3.2 percent annual growth and the about 1 percent growth rate in the last quarter, points that the US economy might weather the high inflation storm and cannot enter into a recession next year. However, that will continue as long as people continue to spend. Noteworthy, if the economy does not go into inflation, growth in the same period will slow compared to previous years.
Which Way for the US Economy
As noted, the fears of a recession in the US are still high among economic and financial experts. The US economy will need to continue maintaining a lower trading deficit and rely on people to spend more in different sectors of the economy to help prevent a recession. The Fed will also hope the steps taken to protect the economy from inflation take hold quickly to avoid a high-interest year that slows growth.
