Real GDP Rises in Q3 Despite Weakness in Underlying Details

Source: Economics Group of Wells Fargo Bank, N.A.Summary

  • Real GDP grew at an annualized rate of 2.6% in Q3-2022 relative to the previous quarter, which more or less matched the consensus expectation.
  • The headline growth rate was flattered by the 2.8 percentage point boost from real net exports. However, imports likely will rebound and exports look set to weaken given clear signs of economic deceleration abroad and the strength of the dollar.
  • Real final sales to domestic purchases, which is the sum of consumer spending and fixed investment spending, was essentially flat in the third quarter.
  • The core PCE deflator rose 4.9% on a year-ago basis in Q3-2022. This outturn implies that core prices rose roughly 0.4% in September relative to August. Although inflation is showing signs of receding, it is still much too hot for the FOMC’s liking.
  • We look for the FOMC to hike rates by another 75 bps at its meeting on November 2. We also expect the U.S. economy to slip into recession starting in the second quarter of 2023.