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The U.S. economy grew faster than expected in the July-September quarter, the government reported Thursday, underscoring that the United States is not in a recession despite distressingly high inflation and interest rate hikes by the Federal Reserve.
But the economy is hardly in the clear, and the solid growth reported for the third quarter did little to alter the growing conviction among economists that a recession is very likely next year.
Higher borrowing rates and chronic inflation will almost certainly continue to weaken consumer and business spending. And likely recessions in the United Kingdom and Europe and slower growth in China will erode the revenue and profits of American corporations. Such trends are expected to cause a U.S. recession sometime in 2023.
Still, there are reasons to hope that a recession, if it comes, will prove a relatively mild one. Many employers, having struggled to find workers to hire after huge layoffs during the pandemic, may decide to maintain most of their existing workforces even in a shrinking economy.
In the July-September quarter, the economy accelerated to a 2.6% annual pace, after two quarters of contraction. Consumers spent more and exports jumped, offsetting a sharp slowdown in home sales and construction.
Six months of economic decline is a long-held informal definition of a recession. Yet nothing is simple in a post-pandemic economy in which growth was negative in the first half of the year but the job market remained robust, with ultra-low unemployment and healthy levels of hiring. The economy’s direction has confounded the Fed’s policymakers and many private economists ever since growth screeched to a halt in March 2020, when COVID-19 struck and 22 million Americans were suddenly thrown out of work.
By far the biggest threat to the economy remains inflation, which is still near its highest level in four decades. Even for workers who received sizable raises, their pay has dropped once it’s adjusted for inflation. The pain is being felt disproportionately by lower-income and Black and Hispanic households, many of whom are struggling to pay for essentials like food, clothes, and rent.
High inflation has also become a central issue in Republican attacks on President Joe Biden and his fellow Democrats, who have been thrown on the defensive as they seek to maintain control of Congress in the midterm elections.
So what is the likelihood of a recession? Here are some questions and answers:
WHY DO MANY ECONOMISTS FORESEE A RECESSION?
They expect the Fed’s aggressive rate hikes and persistently high inflation to overwhelm consumers and businesses, forcing them to slow their spending and investment.
