The economy may be in better shape than you think…for now

A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here.

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The housing market is quickly losing steam. Interest rates continue to rise. The stock market is still volatile. And inflation continues to be a big problem for people trying to pay their bills.

Given all of this, one might think that the de-facto economic report card for the third quarter — gross domestic product, or GDP — due on Thursday will be bleak.

But here’s the thing.

Economists are actually predicting decent, if not spectacular, growth. The consensus forecast from economists polled by Reuters is for GDP to grow at an annualized pace of 2.1% in the third quarter. (This will be the first estimate for third-quarter GDP, and there will be more revisions in the coming weeks.)

There’s an even rosier forecast from the Federal Reserve Bank of Atlanta, whose widely watched and well-respected GDPNow model tracks all the latest economic data and comes up with a forecast for GDP. The latest GDPNow reading calls for 2.9% annual growth.

Why so rosy despite all the grim news? First, a large portion of GDP is made up of consumer spending – and while we all complain about inflation, rising prices haven’t actually stopped consumers from investing just yet. According to figures from the authorities, retail sales were up 8.2% in September from a year ago.

It also helps that the labor market is still healthy. American companies are adding hundreds of thousands of jobs a month, the unemployment rate is near a half-century low of 3.5%, and wages are growing (albeit not as fast as prices.)

If GDP ends up rising somewhere between 2% and 3% — instead of retreating as it did in both the first and second quarters — that means we’re less likely to be in a recession. That would be welcome news for consumers, investors and the Federal Reserve.

It also means that the Fed will likely continue to raise interest rates sharply to finally stifle inflation once and for all. Yes, that increases the chances of an eventual recession down the road since rate hikes take time to affect most parts of the real economy, with mortgage rates and housing being the notable exception.

“The Fed risks triggering an American recession with its interest rate increases, but the bigger risk is an economy at the mercy of rising prices, says ADP chief economist Nela Richardson in a report. She argued that inflation can boost growth in nominal terms as consumers spend more…but it comes at a cost. It eats into workers’ paychecks.

Beyond a strong report for the third quarter, however, some economists are concerned about future growth.

“The looming GDP hit from higher rates and a stronger dollar is huge,” Jeffries economists Aneta Markowska and Thomas Simons said in a report. They compared the current Fed tightening and its aftermath to when the Fed aggressively raised interest rates to fight inflation in the early 1980s under then-Fed Chairman Paul Volcker.

These interest rate increases helped cause a so-called double-dip recession, in which the economy suffered two downturns between 1980 and 1982.

Markowska and Simons also worry that the Fed is so intensely focused on inflation that it won’t act quickly enough to cut rates again when the economy shows longer-term signs of softening.

“We also expect the Fed to be slow to respond to economic weakness, which is likely to prolong the next recession and intensify its severity,” they said, adding that they do not think the Fed will cut interest rates until early 2024.. .although a recession is likely to begin by the third quarter of 2023.

In other words, the long-awaited “soft landing” for the economy may turn out to be a pipe dream.

“An economic slowdown is likely in 2023 due to the difficulties in achieving a soft landing in general. Achieving a soft landing with inflation above 8 percent will prove even more challenging,” said José Torres, senior economist at Interactive Brokers, in a report.

“This recession may require the Fed to keep its foot on the brake longer,” he added. “Fighting high inflation while keeping economic growth positive is a challenging ordeal.”

Bottom line: So the good news is that the economy is not likely to be in a recession just yet…and third quarter GDP should support this view. The problem is that a downturn is still likely to come at some point in 2023.

The income has helped to strengthen the stock market so far this month. But one sector that typically does best, technology, is unlikely to please investors.

The results from social media company Snapchat (SNAP), which gave a gloomy outlook, were not encouraging. And as CNN Business’ Clare Duffy points out, upcoming earnings from the likes of Apple ( AAPL ) , Amazon ( AMZN ) , Google owner Alphabet ( GOOGL ) , Microsoft ( MSFT ) and Facebook parent Meta may not be so promising either .

The decline in online advertising will hurt several of these companies, especially Meta and Alphabet, which also owns YouTube. The strength of the dollar will also eat into all their international sales and profits.

There is still hope that these tech titans will have a better outlook for the fourth quarter. After all, technology usually shines during the holidays as consumers break out gadgets.

But with inflation taking a bite out of household budgets, it remains to be seen how many new iPhones, Pixels, Xboxes and Quest VR headsets will arrive in those smiley Amazon boxes in December.

Monday: UK and Eurozone flash PMI; Revenue from Hyundai, Philips (PHG) and Discover (DFS)

Tuesday: US consumer confidence; revenue from GM (GM), GE (GE), UPS (UPS), Coca-Cola (KO), UBS (UBS), HSBC (HSBC), SAP (SAP), JetBlue (JBLU), Alphabet, Microsoft, Visa ( V), Texas Instruments (TXN), Spotify (SPOT), Chipotle (CMG) and Mattel (MAT)

Wednesday: United States new home sales; earnings from Boeing (BA), Bristol-Myers (BMY), Barclays (BCS), Heineken (HEINY), Deutsche Bank (DB), General Dynamics (GD), Kraft Heinz (KHC), Norfolk Southern (NSC), Hilton ( HLT), Harley-Davidson (HOG), Ford (F) and Meta

Thursday: US GDP; ECB interest rate decision; China industrial production; US Weekly Jobless Claims; United States durable goods; earnings from Comcast (CMCSA), Samsung (SSNLF), Unilever (UL), Credit Suisse (CS), Anheuser-Busch InBev (BUD), Caterpillar (CAT), Merck (MRK), Southwest (LUV), McDonald’s (MCD) , Mastercard (MA), Amazon, Apple, Intel (INTC), T-Mobile (TMUS) and Capital One (COF)

Friday: United States personal income and expenses; US PCE inflation; Bank of Japan interest rate decision; France and Spain’s GDP; earnings from Exxon Mobil (XOM), Chevron (CVX), Volkswagen (VLKAF), AbbVie (ABBV), Charter Communications (CHTR) and Colgate-Palmolive (CL)

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