WASHINGTON – The United States economy heated up in the third quarter, government data showed on Thursday, as a resilient job market helped boost consumer spending, holding off the prospect of a recession.

Gross domestic product (GDP) growth came in at an annual rate of 4.9 per cent for the July-to-September period, the quickest pace since late 2021, according to Commerce Department figures.

Analysts have raised fears of a downturn as the US central bank started lifting interest rates rapidly in 2022 to fight inflation, but the world’s biggest economy has so far defied these predictions.

A key factor is the strong labour market, which has provided healthy wage growth, allowing consumers to keep spending even as they draw down on Covid-19 pandemic-era savings.

The latest GDP figure is a significant bump from the second quarter’s 2.1 per cent growth, and much higher than the 4 per cent figure that analysts expected.

It also comes as President Joe Biden works to bolster sentiment on his handling of the economy as he seeks re-election in 2024.

The pick-up reflects “accelerations in consumer spending, private inventory investment, and federal government spending” among other factors, said the Commerce Department.

Mr Biden has lauded low US unemployment, slowing inflation and continued growth, citing an economic agenda he dubs “Bidenomics”.

But polls have indicated that voters remain sceptical over his management, adding to challenges as he seeks another term in the White House.

Unlikely sustained

For now, a robust growth figure adds to hope that the country can bring down inflation without triggering a recession.

But if the trend persists, it could lead policymakers to consider further interest rate hikes to rein in price increases in a sustainable way.

“The US economy continued to show remarkable resilience over the summer with surprisingly robust job growth and an unexpected consumer spending spree,” said Mr Gregory Daco, chief economist at EY.

The latest Commerce Department figures show that consumer spending rose 4 per cent in the latest quarter.

Mr Daco told AFP: “While these signs of economic strength will fuel speculations that the economy is re-accelerating, we do not expect such strong momentum will be sustained.”

Nationwide chief economist Kathy Bostjancic said she expects that consumers are spending the “last portion of pandemic-related savings”, and she sees growth slowing in the fourth quarter.

She told AFP that the US Federal Reserve will be “uncomfortable” with the idea of a strong economy, increasing the need for a further hike as it battles sticky inflation.

But high bond yields are driving rates for the consumer sharply up as well, doing some of the Fed’s work and giving the central bank room to hold off a further hike for now, she said.

Looking ahead, the durability of economic momentum in the fourth quarter will help Federal Reserve officials determine whether to raise interest rates again.

Many economists expect growth to slow in the final months of the year as borrowing costs limit purchases of big-ticket items and student-loan payments resume.

But should demand stay robust, it risks keeping inflation above the central bank’s 2 per cent goal, and may warrant tighter monetary policy.

At next week’s meeting, policymakers are widely expected to leave the benchmark interest rate unchanged, with some pointing to the rapid jump in government borrowing costs as a reason for caution.

The 10-year Treasury yield surged above 5 per cent earlier this week for the first time in 16 years.

“Given the uncertainties and risks, and how far we have come, the committee is proceeding carefully,” Fed chair Jerome Powell said on Oct 19, referring to the central bank’s rate-setting Federal Open Market Committee.

So far, the data suggests that inflation continues to dissipate.

The closely watched core personal consumption expenditures (PCE) price index, which strips out food and energy costs, stepped down to a 2.4 per cent pace in the third quarter. Including those more volatile categories, the overall PCE price index increased 2.9 per cent. AGENCE FRANCE-PRESSE, BLOOMBERG