WASHINGTON: The U.S. economy rebounded strongly in the third quarter amid a shrinking trade deficit, but the data overstated the nation’s economic health as domestic demand was the weakest in two years because of the Federal Reserve’s aggressive interest rate hikes.
The Commerce Department’s advance third-quarter gross domestic product report on Thursday also showed residential investment contracting for a sixth straight quarter, the longest such stretch since the housing market collapse in 2006, as the sector buckles under the weight of soaring mortgage rates.
While overall inflation slowed substantially from the second quarter, underlying price pressures continued to bubble.
Still, the return to growth after two straight quarterly declines in GDP offered evidence that the economy was not in a recession, though the risks of a downturn have increased as the Fed doubles down on rate hikes to battle the fastest-rising inflation in 40 years.
“Despite the shiny headline number, a look under the hood shows a much grimmer picture of the U.S. economy, one that is clearly losing steam,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. “With the full effect of past and future Fed rate hikes still to be felt, the economy appears poised for a modest downturn in the first half of next year.” –Agencies
