The American economy is even warmer than we thought before, and GDP growth could reach 4% in the third quarter
While some at Wall Street are concerned about a recession, recent economic data show that GDP growth actually accelerates faster than previous figures have indicated.
Thursday, the growth of the second quarter was revised even higher, 3.8% compared to a previous reading of 3.3%, on robust consumption expenses. It was after a drop in the first quarter that was motivated by the trade war of President Donald Trump.
Meanwhile, third trimester growth promises to be warmer. The orders of sustainable goods for August have jumped more than expected, according to data published Thursday. And the report on the income of people and the expenses on Friday showed that consumption remained healthy in August while exceeding forecasts.
Since consumption expenditure represents more than two -thirds of the US economy, gains compensate more than low housing, which remains shaken by high prices of houses and mortgage rates.
The Atlanta Fed GDP tracker now grows in the third quarter to 3.9%, against an earlier estimate of 3.3%, citing consumption data and a closer trade deficit in August.
Growth may not stop at this high rate. Stephen Brown, deputy chief economist in North America in Capital Economics, said on Friday in a note that data on income and expenses should further mitigate the fears that the United States is at the dawn of net slowdown.
He also noted that discretionary expenses, which are generally reduced when consumers suffer, have led growth. And although spending gains have exceeded income in the last three months, the August savings rate was still 4.6% relatively high, which means that consumers are not yet too extensive.
“The increase in actual consumption in August means that, taking into account the stronger momentum in the third quarter, we now have monitoring of consumption growth in the third quarter of up to 3.3%, against 2.3% last week,” added Brown. “The growth of GDP in the third quarter will take place up to 4%.”
Admittedly, the highest GDP also means that the federal reserve will be lower than the pressure to reduce rates aggressively. Capital Economics expects the Fed only cuts one of its two remaining meetings this year, while Wall Street is betting on cups during the two meetings.
Recession fears
Optimistic growth forecasts contrast with the warnings of the chief economist of Moody’s Analytics, Mark Zandi, who declared that the economy was “on the precipice of the recession”.
While the third quarter, which ends on Tuesday, looks good, he predicted that the United States would be the most vulnerable to a recession at the end of this year and at the start of the neighbor as the impacts of Trump prices and the repression of immigration.
And despite the consumption of remaining resilient in the face of inflation and high prices, housing could further reduce the economy. Zandi said that construction permits as the most critical economic variable to predict recessions, and they are now hollows from the pandemic era.
Global consumption gains also obscure the clear fracture between American consumers and the growing dependence of high employees.
Moody’s recently estimated that the lowest 80% of employees simply spent online with inflation from the pandemic, while the highest 20% stimulate growth.
“As long as they continue to spend, the economy should avoid recession, but if they become more cautious, for any reason, the economy has a big problem,” noted Zandi.
