Recession was likely avoided for good as the US economy keeps outperforming market expectations at every quarter.
Soft landing looks increasingly more like a reality, and not a far-flung fantasy of overly-optimistical economists anymore. The United States, by far the world’s largest economy, has exceeded expectations for its GDP growth, coming in at 5.2% for the third quarter.
This stunning level of growth is outpacing even China, one of the world’s fastest-growing countries and a contender for global hegemony against the United States.
Wall Street was expecting a 5% GDP growth in the third quarter, which would have still been a positive outcome.
Consumer spending, the backbone of the American economy, grew 3.6% in the third quarter. Although a healthy growth, it slightly fell from the previous quarter-to-quarter growth of 4%. On the other hand, however, government spending increased in the third quarter compared to the previous one at 5.5%.
Many economists believe the increase in consumer spending is still caused by savings accumulated during the COVID-19 pandemic, although many believe they are starting to run out.
The US job market is also as healthy as it ever was, with an average of 239,000 new jobs added each month in 2023. Unemployment has remained below the 4% threshold for four consecutive months.
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Soft landing or recession?
The resilience of the American economy has surprised even the most optimistic analysts. In order to cool inflation down, the US Federal Reserve has raised interest rates for 11 consecutive meetings, bringing them to 5.5%.
The pace and violence of these rate hikes made many investors fear a recession was incoming. Indeed, a similar tightening policy brought the European Union and the United Kingdom to the brink of a long-term economic contraction.
And yet, the US economy kept outperforming its peers and competitors. Even China, the US’s main geopolitical rival, lagged behind in terms of economic performance. China is currently battling deflation, one of the worst real estate crises in its history, and a steep fall in trading activity.
The overall health of the US economy might prompt the Federal Reserve to hike rates one more time. Inflation in the United States keeps hovering around the 3% mark, a significant decline from the 2022 highs but still far from the 2% target.
Fed Chairman Jerome Powell declared that he’s pursuing a policy of “higher for longer”, meaning it’s likely rates will remain at the current level for the rest of 2024.
This might hamper American growth for next year, with some estimates bringing it down to 1.5%. Nevertheless, it would be enough to avoid a recession, something absolutely crucial for the American economy during an election year.
