The US economy grew much faster than previously thought in the third quarter

New York

America’s economy grew much faster than previously thought in the third quarter, a sign that the Federal Reserve’s battle to cool the economy to fight inflation is having only limited effect.

The Commerce Department’s latest reading on Thursday morning showed gross domestic product, the broadest measure of the US economy, grew at an annual pace of 3.2% between July and September. That was above the estimate of 2.9% from a month ago. Economists surveyed by Refinitiv had expected GDP to remain unchanged from the previous reading.

The report said the stronger-than-expected reading was due to increases in exports and consumer spending that were partially offset by a decline in spending on new homes. Consumer spending is responsible for more than two-thirds of the country’s economic activity.

U.S. stocks fell on Thursday on fears that stronger-than-expected GDP could prompt the Fed to continue raising interest rates more than expected in 2023. The Dow lost more than 400 points, or more than 1%, while the S&P 500 and Nasdaq were both down approx. 2% in late morning trading.

The Fed has raised interest rates throughout the year to cool demand for goods and services and reduce inflation. Economists have long worried that the Fed’s actions could tip the US economy into recession next year.

Inflation has cooled in recent readings, but the US economy has remained strong. Some surveys released this week suggest the Fed’s higher interest rates are not slowing spending by businesses or consumers.

A recent survey of CFOs found that the current level of interest rates has not affected their spending plans. And consumer confidence improved in December, according to a Conference Board survey, reaching the highest level since April.

In addition, employers have continued to hire at a historically high pace, although layoffs have increased in some industries, especially technology.

A separate report from the Ministry of Labor on Thursday showed that unemployment claims remained relatively unchanged.

Initial weekly claims for unemployment benefits rose to 216,000 for the week ending December 17. Last week’s total was revised upwards by 3,000 to 214,000.

Economists expected initial claims to land at 222,000, according to Refinitiv.

The weekly initial claim totals are hovering around pre-pandemic levels. In 2019, weekly claims averaged 218,000.

Continuing claims, which include people collecting benefits on an ongoing basis, fell slightly to 1.672 million for the week ended December 10. The week’s number of continuing claims was revised up to 1.678 million.

The final GDP report is one of the most forward-looking measures the government releases, looking at the state of the economy almost three months ago. The current forecast from economists is that growth in the current period will be only 2.4%, significantly lower than Thursday’s reading.

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