US economic growth bounced higher than expected in the third quarter amid a steady decline in the trade deficit, but it buoys the health of the economy as the Federal Reserve’s aggressive interest rate curbs consumer spending.
Gross domestic product grew at a 2.6% annual rate in the previous quarter, the Commerce Department said in its advance GDP estimates on Thursday, with output declining for two straight quarters that raised concerns that the economy was in recession.
The economy shrank at a pace of 0.6% in the second quarter.
Economists polled by Reuters had forecast GDP growth at 2.4%. Estimates ranged from a rate of as low as 0.8% to a high of 3.7%.
While the economy may not be in recession, recession risks have increased as the Fed doubles down on rate hikes as it fights the fastest-rising inflation in 40 years. The US central bank raised its benchmark overnight interest rate from near zero to 3.25% from 3.00% in March, the fastest pace of policy tightening in a generation or more.
The report will have little impact on monetary policy, with Fed officials looking at personal consumption expenditure price data for September and third-quarter labor cost numbers for Friday ahead of their November 1-2 policy meeting.
The trade deficit narrowed somewhat sharply as demand slowdown curbed the import bill. Exports also increased significantly in the last quarter. Wild swings in trade and inventories were behind the contraction in GDP in the first half of the year.
Growth in consumer spending, which accounts for more than two-thirds of US economic activity, slowed to 1.4% from a 2.0% pace in the April-June quarter.
Consumer spending is being supported by a strong labor market, which is raising wages. The Labor Department on Thursday reported a slight increase in the number of people filing new claims for unemployment benefits last week.
Initial claims for unemployment benefits rose by 3,000 for the week ended October 22, to a seasonally adjusted 217,000. Claims have remained low, despite reports from companies, mostly in interest rate-sensitive sectors of the economy, of layoffs of workers.
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