Gregory Heym is Chief Economist at Brown Harris Stevens. His weekly series, The Line, covers new developments to the economy, including trends and forecasts. Read on for the latest report and subscribe here to receive The Line in your inbox.
Today, we have the 3Q23 GDP report, the latest on mortgage rates, and we tease an exciting announcement coming in next week's edition of The Line. Actually, since I don't have anything to add on that last item until next week, we can skip it. Let's get right to the latest on economic growth.
Economic Growth Higher than Expected in 3Q23
Add one more data point to our list of better-than-expected economic indicators. Gross domestic product—the value of all goods and services produced in the U.S.—rose at an annual rate of 4.9% last quarter, beating the Dow Jones estimate of 4.7%.
If you’ve read my past few columns, you won’t be surprised by this report, as recent data on retail sales and hiring greatly exceeded expectations. Since consumer spending accounts for about 70% of GDP, a jump in retail sales and hiring was sure to push GDP higher. The 4.9% rate of economic growth is the biggest increase since the fourth quarter of 2021.
I’m sure you all remember the formula for GDP, but just in case you forgot here it is:
GDP= C + I + G + NX
Here’s what each of those letters mean, and how they contributed to third quarter GDP:
- C = Personal consumption expenditures +2.69%
- I = Gross private domestic investment +1.47%
- G = Government consumption expenditures and gross investment +0.79%
- NX = Net exports -0.08%
Add all that up and you get 4.87%, which rounds up to 4.9%.
While this tells us we had a great economy over the summer, what does this mean for the future?
Some may think this report may force the Fed to hike rates next week, but the markets are still betting they won’t. In my opinion, if they plan to hike one more time—which they indicated in their economic projections last month—then get it over with now while the economy is still strong, instead of later when there’s a very good chance growth will be significantly lower.
Here’s why economic growth is expected to decline in the coming months:
- The resumption of student loan payments.
- The continued impact of higher mortgage rates on housing.
- The depletion of the "excess savings" Americans built up during the pandemic, and have used to keep spending during 40-year high levels of inflation.
- The recent surge in gas prices.
- The wars in the Middle East and Ukraine.
The good news is there’s no reason to expect a deep prolonged recession. In fact, there’s an increasing possibility that we can avoid one and get the "soft landing" the Fed’s been hoping for. That would be nice!
Mortgage Rates Rise for the Seventh Straight Week
I think that headline speaks for itself, so let’s just leave it at that.
