The Bureau of Economic Analysis announced today that seasonally adjusted U.S. real GDP grew at a 2.9% annual rate in the third quarter. That makes two quarters in a row with values close to the historical average, a welcome relief from the modestly negative growth rates with which we started last year.
The new data caused the Econbrowser recession indicator index to ease down to 8.3%, undoing the caution signal from the two previous quarters. This is an assessment of the situation of the economy in the previous quarter (namely 2022:Q3). Although some observers thought the U.S. might have entered a recession last year, the facts didn’t end up supporting their pessimism.
Notwithstanding, all is not well with the housing sector, which is ground zero for the Fed’s war on inflation. Drops in construction of new homes subtracted an average of 1.2% from the annual GDP growth rate over each of the last three quarters. The Fed’s hikes in interest rates are defintely holding back growth.
The yield curve says the market is betting on one or two additional modest hikes from the Fed, but by the end of the year it will have reversed course and be bringing rates down.