Despite the recent surge in US economic growth, economists are cautioning that this does not necessarily indicate a reacceleration of the economy. Factors such as a fall in the saving rate, government spending, and inventory accumulation are not sustainable in the long term. Additionally, signs of monetary tightening and tighter credit conditions are weighing on investment spending and consumer spending, which could lead to a sharp downturn in the coming quarters. The Federal Reserve will consider the GDP figure at its policy meeting next week, but experts do not expect strong momentum to be sustained.
H2 US Economic Growth Raises Concerns About Sustainability
The recent announcement of the US economy’s fastest growth rate in nearly two years has sparked speculation about a potential reacceleration. However, economists are cautioning that this surge in activity does not necessarily indicate long-term sustainability. While the 4.9% annualized jump in GDP in the third quarter and strong monthly data through September suggest that a recession is unlikely before year-end, experts point to several factors that may hinder sustained economic growth.
Oxford Economics lead US economist Michael Pearce highlights the role of temporary factors in driving the recent economic strength. A sharp fall in the saving rate, a rise in government spending, and a jump in inventory accumulation have contributed to the robust growth. However, these factors are not expected to be sustained, raising concerns about the future trajectory of the economy.
Furthermore, signs of monetary tightening and tighter credit conditions are weighing on investment spending and consumer spending. The recent rapid tightening of financial conditions, spurred by surging bond yields, represents a material headwind for business investment and consumer spending. In addition, the restart of student loan payments, the lagged impact of monetary policy, and a fragile global economic backdrop are further factors that could dampen economic growth.
EY chief economist Gregory Daco echoes these concerns, stating that while signs of economic strength may fuel speculation about reacceleration, strong momentum is unlikely to be sustained. He predicts that real GDP growth will drift below trend for several quarters, with a muted growth rate of 1.4% in 2024 following an expected growth of 2.4% in 2023.
The Federal Reserve will consider the GDP figure at its upcoming policy meeting. While the news of the strong economic growth may not be ideal for the central bank, Raymond James’ chief economist Eugenio Aleman suggests that the continued disinflationary process on a year-earlier basis could alleviate some pressure.
In conclusion, while the recent surge in US economic growth is encouraging, economists are cautious about its sustainability. Temporary factors and tightening financial conditions pose challenges to investment and consumer spending, which could lead to a sharp downturn in the coming quarters. The Federal Reserve will closely monitor the GDP figure as it assesses the state of the economy.