GDP grew 4.9% in Q3, the highest since 2014. How’d we get here?
GDP grew 4.9% in Q3, the highest since 2014. How’d we get here?
The big economic number of the day was 4.9%. That’s how much gross domestic product grew this past quarter, adjusted for inflation, the U.S. Commerce Department said. Remember, GDP is the value of all goods and services produced in the U.S., basically an imperfect but useful measure of the whole economy.
It may not sound like a lot, but historically for the U.S., 4.9% is gangbusters. If you ignore the weirdness of the COVID recovery, 4.9% is the highest quarterly economic growth rate this country has seen since 2014.
Fitch Ratings economist Olu Sonola is one of the experts I call when we get some big data release that says consumers are still spending a lot.
And for the last year or so, the interviews typically go like this: I ask how much longer the economy can be this good with inflation and Federal Reserve rate hikes; he basically says not much longer.
Matt Levin: Olu, how many times we had a version of this conversation?
Olu Sonola: A lot of times (laughter) … and every single time, you always have to say, “This is not sustainable.” And that’s what I have to say again today.
Bumps in government spending and exports helped boost GDP this past quarter. But the real story was the consumer. Almost 60% of that GDP growth came from us splurging on concerts and restaurants and durable goods, which is where Sonola sees an eventual slowdown.
“Durable goods, you typically finance them — motor vehicles, furniture. And if you look at the interest rate environment, it’s much, much higher. And there’s a limit to what you can put on your credit card,” Sonola said.
Sonola is in a group of economists that think the past summer was pretty much the last hurrah of consumer splurging. In the coming months, higher rates will finally hit pocketbooks.
Although, there’s another camp.
“I’m not convinced that it’s a last hurrah, I think it’s just a hurrah. I think we just had a good time over the summer,” said Allison Luedtke, an assistant professor of macroeconomics at St. Olaf College.
“Wage growth is outpacing inflation. And I think people are looking into the fourth quarter of the year and saying, ‘I’m gonna have to start paying my [student] loans again. But I also got a raise, I got a new job,'” she said.
But you could use inflation as an excuse to trim back some of your holiday shopping:
Sorry Timmy, Fed Chair Jay Powell says you can’t have that XBOX you wanted. How about we buy you a nice Treasury bond instead?
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