MARK-TO-MARKET: Economy rebounds in Q3 but outlook dims – Quad-City Times | CarTailz

On Thursday, the US Department of Commerce released its latest Gross Domestic Product (GDP) report. GDP is defined as the total dollar value of goods and services produced by the economy. It serves as a key indicator of the health of our economy.

Robust GDP growth reflects a strong and dynamic economy. An increase in consumer and business demand for goods and services must be matched by an increase in production and employment to meet that demand. This leads to rising wages for workers and higher disposable income. For companies, economic growth means higher corporate profits, which leads to higher share prices.

In the third quarter from July to September, the economy grew at an annualized rate of 2.6%, beating Wall Street’s forecast of 2.3%. Consumer spending, which captures the consumer spending component of our economy, grew at a relatively modest annualized rate of 1.4%. This was slightly below the 2% growth rate recorded in the second quarter. Consumer spending accounts for about 68% of our country’s total economic growth.

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With a growth rate of 2.6% in the third quarter, the “technical” recession of the first and second quarters came to an end. A technical recession is defined as two consecutive quarters of negative economic growth. This was achieved as the economy contracted 1.6% in the first quarter and 0.6% in the second quarter.

However, the economic slowdown in the first and second quarters was not considered an “official” recession. This statement is issued by the National Bureau of Economic Research (NBER), a non-profit research organization based in Cambridge, Massachusetts. The NBER also considers factors other than economic growth — such as the labor market, consumer spending, and industrial production — when deciding whether or not the economy has entered an official recession. With consumer spending, jobs and other facets of the economy still quite strong, the NBER refused to call the decline in the first and second quarters an official recession.

Despite the return to positive growth in the third quarter, economic storm clouds are beginning to darken on the horizon. There are growing concerns that the economy will slide back into recession in the second half of next year. The national unemployment rate is expected to increase from the current 3.5% to 4.5-5% by the end of 2023. High inflation and rising interest rates are likely to weigh heavily on consumer and corporate spending. The once red-hot housing market is already showing signs of wear and tear. In other words, many of the once strong components of the economy that kept the NBER from declaring an official recession may soon begin to fade.

The rather bleak economic forecasts being made beg the question – how can Wall Street predict a recession in nine to 12 months?

To keep inflation under control, the US Federal Reserve has embarked on an aggressive agenda of raising interest rates. In fact, it was the Fed’s most aggressive rate hike pace in 42 years. Higher interest rates make it more expensive to buy goods and services on credit. Consumers are being charged higher interest rates on their credit cards, bank loans, car loans, and mortgage loans. Businesses are charged a higher interest rate to borrow money to purchase inventory and supplies, equipment, technology, or to expand their business. The Fed is hoping these higher interest rates, and therefore higher costs, will discourage spending, which should help keep rising prices in check.

The problem, however, is that the rise in interest rates is taking a heavy toll on consumers, businesses and ultimately the US economy. The fallout is expected to impact jobs, consumer spending, industrial production and many other facets of the economy. Historically, it takes six to nine months for the effects of these rising interest rates to make their way through the economy. With the Fed expected to continue raising interest rates in the early months of 2023, the expected recession is scheduled for late summer/early fall of next year.

The extent of the forecast recession is unclear. Will it be short and mild or much heavier and long lasting? Nobody can say for sure at the moment. But Wall Street’s alarm bells are ringing and the warning flags are being raised. As the weeks and months progress, Wall Street will analyze the latest economic data to find those answers.

Mark Grywacheski is a financial markets and economic research specialist and investment advisor with Quad-Cities Investment Group, Davenport.

Disclaimer: Opinions expressed here are subject to change without notice. Any prices or quotations contained herein are for guidance only and do not constitute an offer to buy or sell any security at any particular price. The information has been obtained from sources believed to be reliable, but we do not guarantee that the material presented is accurate or that it is contains a full description of the securities, markets or developments mentioned. Quad-Cities Investment Group LLC is a registered investment adviser with the US Securities Exchange Commission.

Mark Grywacheski is a financial markets and economic research specialist and investment advisor with Quad-Cities Investment Group, Davenport.

Disclaimer: Opinions expressed here are subject to change without notice. Any prices or quotations contained herein are for guidance only and do not constitute an offer to buy or sell any security at any particular price. The information has been obtained from sources believed to be reliable, but we do not guarantee that the material presented is accurate or that it is contains a full description of the securities, markets or developments mentioned. Quad-Cities Investment Group LLC is a registered investment adviser with the US Securities Exchange Commission.

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