US Economy Returns to Growth — but Maybe Not For Long
Economic growth was positive in the third quarter, ending a six-month run of contraction that started at the beginning of the year, the Bureau of Economic Analysis said Thursday.
The summer rebound saw gross domestic product increase by 0.6 % from July to September, which translates to a 2.6% annual growth rate.
Trade played a major role in the results, as the U.S. exported more gas and oil amid shortages in Europe resulting from Russia’s invasion of Ukraine. Consumer spending rose, as well, although the 1.4% annual pace recorded in the third quarter marked a decrease from the 2% rate the quarter before.
Happy to highlight any good economic news ahead of the midterm elections, President Joe Biden said the report shows that the economy is stronger than his critics have claimed. “For months, doomsayers have been arguing that the U.S. economy is in a recession and Congressional Republicans have been rooting for a downturn,” he said in a statement. “But today we got further evidence that our economic recovery is continuing to power forward.”
Trouble ahead? Inflation continues to be a problem for millions of American consumers, and some economists see worrying signs that suggest another slowdown is on the horizon. Not least, investment in housing fell by 26% during the quarter, driven in large part by the Federal Reserve’s campaign to tighten monetary conditions by raising interest rates and shrinking its balance sheet.
• Diane Swonk, chief economist at KPMG, said that domestic demand has slowed dramatically. “The irony is, we’re seeing the strongest growth of the year when things are actually slowing,” she told The Washington Post. “There are some real cracks in the foundation. Housing is contracting. The consumer is slowing. GDP is growing, but not for all of the right reasons.”
• Jeffrey Roach, chief economist at LPL Financial, said in a statement that while the U.S. economy is not currently in a recession, future growth looks weak. “A deteriorating housing market and nagging inflation, along with an aggressive Federal Reserve, put the economy on unsure footing for 2023.”
• “The overall state of the economy is deteriorating and a lot of it is just the weight of elevated inflation and higher interest rates,” said Richard F. Moody, chief economist at Regions Financial. “I don’t think that we’ve seen the full effects of higher rates work their way through the economy, so that’s why we have pretty low expectations for the next several quarters.”
• Joseph Brusuelas, chief economist at the consulting firm RSM, was a bit more literary in his analysis, saying that the report amounted to “sound and fury signifying nothing.” Shakespeare aside, he argued that “once one looks at the pace of economic activity excluding trade, domestic economic activity continues to grow well below the 1.8% long-term trend rate and clearly is at risk of falling into recession in the near term.” Brusuelas now puts the probability of a recession in the next year at 65%.
Quote of the Day
“High inflation necessitates a response. But the concern is that the Fed is doing too much, too quickly. The Fed has already taken drastic action by raising rates by so much in a short period of time. We should wait to see the effects on the economy and how those changes are absorbed. Relief for American consumers is on the horizon as housing prices start to cool and businesses inventories increase. Raising rates now when prices may come down would be foolish and damaging to American consumers and small businesses.”
– Sen. John Hickenlooper (D-CO), in a letter to Federal Reserve Chair Jerome Powell calling on the Fed to pause its campaign of interest rate hikes. Hickenlooper is one of a growing number of Democrats expressing concern that the central bank’s rate hikes will cause economic pain — critiques that, as The Washington Post’s Rachel Siegel writes, “reflect growing criticism among left-leaning economists and Fed watchers who say the central bank is going too far and risks overcorrecting and pushing the economy into a recession.”
Health Insurance Premiums Stayed Flat in 2022, but Could Surge in 2023
Annual premiums for employer-provided family health insurance coverage were relatively flat compared to 2021, according to a survey by the Kaiser Family Foundation, but premiums may rise at a faster rate next year.
The average family premium reached $22,463 this year, just 1% higher than reported last year. Workers are contributing an average of $6,106 toward that cost, according to the report. The premium for individual coverage averaged $7,911, about 2% higher than last year. Workers at firms with less than 200 workers pay and average of $7,556 for family coverage, nearly $2,000 more than workers at larger firms, who pay an average of $5,580.
Among workers whose coverage includes an annual deductible, the average threshold for single coverage this year was $1,763, similar to last year’s $1,669 but up 61% since 2012.
“The modest change in premiums this year is unusual in that it is less than the increase in inflation (8%) or workers’ wages (6.7%) during the same period,” the Kaiser foundation said in a press release. “Even with this year’s minimal change, average premiums for family coverage have risen 43% since 2012, more than the shift in inflation (25%) and a little more than wages (38%) over the same period.”
‘Calm before the storm’: The report’s authors speculate that premiums stayed fairly flat because they were set in 2021, before inflation soared to levels not seen in decades. Kaiser CEO Drew Altman said that premiums are now likely to jump more significantly in the coming year. "Employers are already concerned about what they pay for health premiums, but this could be the calm before the storm, as recent inflation suggests that larger increases are imminent," he said in a statement. "Given the tight labor market and rising wages, it will be tough for employers to shift costs onto workers when costs spike."
Demand for I Bonds Overwhelms US Treasury
The U.S. government’s Series I savings bonds, which provide protection against inflation, now pay a healthy 9.62% interest rate if purchased by October 28. That has sent so many investors scrambling to snap up the bonds that the Treasury Department website where they must be purchased has reportedly experience intermittent outages and the department said it cannot guarantee that all orders will be completed in time.
“During just the final week of October, the Treasury issued $1.95 billion in I Bonds, more than the total for fiscal year 2021,” The Wall Street Journal reports. “In just one year, some 3.7 million new accounts were created on the site, more than the 2.4 million for the prior 10 years combined.”
More than $22 billion worth of I Bonds have been bought over the first nine months of this year.
The interest rate on the bonds is reset every six months and is reportedly expected to drop to about 6.47% as of November.
Number of the Day: 100 Million
About 100 million American adults weren’t working at the beginning of October, according to poll data from the Census Bureau. Although some critics claim that the number of people out of the workforce reflects a lack of work ethic among millions of Americas — “What’s happening in our country right now, we’re getting too many takers in our country,” Republican Sen. Tommy Tuberville of Alabama told a gathering of businessmen earlier this week, adding, “They don’t want to go to work. We’ve got to get Generation X and these Millennials to understand that you have to tote your own load” — the data indicates that the majority are either retired, sick or disabled.
“Almost half of the respondents are retired, which is to be expected given the size of the baby boomer generation and the fact that many exited the labor market early during the pandemic,” says Bloomberg’s Alexandre Tanzi. “Another 12% were either sick from an illness unrelated to Covid or disabled.”
Covid continues to play a powerful role in shaping the workforce, Tanzi says: “The poll implies that 5.6 million people aren’t working because of Covid-19, whether they are ill themselves, caring for someone who’s sick, or they’re concerned about getting or spreading the coronavirus.”
- Dozens of Democrats Call for Action on Child Tax Credit During Lame-Duck Session – The Hill
- Obama-Era Watchdog Agency’s Funding, Independence in Peril – The Hill
- Does This GDP Report Mean We Avoided a Recession? – Bloomberg
- More Americans Die Younger in States With Conservative Policies, Study Finds – USA Today
- Rural Hospitals Plan to Reject Congress’ Program – Politico
- Caterpillar’s 15-Year Tax Saga Ends With $740 Million IRS Settlement – Bloomberg
- Pentagon: Ukraine to Get Advanced Air Defense Systems Early Next Month – Washington Post
- Biden Moves to Scrap Trump-Era Sea-Launched Nuclear Missile Program – The Hill
- Congress Probes Telecom Giants’ Tactics in U.S. Internet Aid Program – Washington Post
Views and Analysis
- GDP Gives Hope to Democrats but Not Many Others – Jonathan Levin, Bloomberg
- The Consumer Economy Is Starting to Crack Under Inflation – Andrea Felsted, Bloomberg
- Republicans Have No Inflation Plan – Paul Krugman, New York Times
- The Flummoxed Federal Reserve Deserves a New Variation on the Peter Principle – George F. Will, Washington Post
- Where the Trillions Needed to Go Green Will Come From – Liam Denning, Bloomberg
- How to Boost Climate Resilience: Fill In Infrastructure Law Funding Gaps – Mark W. Rupp, The Hill
- Universal Basic Income Has Been Tested Repeatedly. It Works. Will America Ever Embrace It? – Megan Greenwell, Washington Post
- RSV Is Filling Children’s Hospitals. We Need a Vaccine for It – Alyssa Rosenberg, Washington Post
- Keeping Americans With Disabilities From Poverty Must Remain a Priority – Mia Ives-Rublee, The Hill