Unexpectedly high Q3 GDP growth: Has the fear of economic crisis ended?

The Q3 GDP report with an impressive +2.6% growth has given the government and investors more confidence in the US economy. However, there are also many comments suggesting that the current economic growth is not sustainable.

Many opinions suggest that US GDP is growing in “sporadic” categories such as net exports and government spending. Instead, cyclical and essential categories of the economy such as investment and consumption are showing a contraction in the scale of the US economy at present.

In addition, core PCE (Personal Consumption Expenditures index) inflation data, the Fed's preferred inflation measure, remains high (5.1% y/y), making many researchers less optimistic about the above GDP data.

This week's macroeconomics article from Viet Hustler will focus on analyzing the main arguments surrounding the controversies about US Q3 GDP growth.

Overview of the Q3 2022 GDP report

Actual GDP growth in Q3/2022: + 2.6% (q/q), higher than the estimated figure (+ 2.4%) and Q2 data (-0.6%).

• FYI: California's state economy has impressively recovered after the Covid pandemic. Along with the current crises in Europe, America's Golden State is likely to overtake Germany to become the world's 4th largest economy (after the US, China, and Japan).

  

GDP growth at a high level despite high inflation and the government's tight monetary policy has made many people confident in the strength of the US economy.

However, breaking down the GDP components shows that GDP grew higher than expected mainly due to net exports (sharp increase in Q3), consumer spending (partly due to inflation effects) and increased government spending:

Therefore, total GDP was boosted by secondary components (not clearly reflecting GDP cycles) such as exports, inventories and government spending...

This growth is considered by many researchers as unsustainable GDP growth….

Why is Q3 GDP growth not sustainable growth?