US economy returns to growth

WASHINGTON (AP) — The US economy grew at a 2.6 per cent annual rate from July through September, snapping two straight quarters of contraction and overcoming high inflation and interest rates just as voting begins in midterm elections in which the economy's health has emerged as a paramount issue.

Thursday's better-than-expected estimate from the Commerce Department showed that the nation's gross domestic product grew in the third quarter after having shrunk in the first half of 2022.

Stronger exports and consumer spending, backed by a healthy job market, helped restore growth to the world's biggest economy at a time when worries about a possible recession are rising.

Consumer spending, which accounts for about 70 per cent of US economic activity, expanded at a 1.4 per cent annual pace in the July-September quarter, down from a 2 per cent rate from April through June.

Last quarter's growth got a major boost from exports, which shot up at an annual pace of 14.4 per cent. Government spending also helped: It rose at a 2.4 per cent annual pace, the first such increase since early last year, with sharply higher defence spending leading the way.

Housing investment, though, plunged at a 26 per cent annual pace, hammered by surging mortgage rates as the Federal Reserve aggressively raises borrowing costs to combat chronic inflation. It was the sixth straight quarterly drop in residential investment.

Overall, the outlook for the overall economy has darkened. The Fed has raised interest rates five times this year and is set to do so again next week and in December. Chair Jerome Powell has warned that the Fed's hikes will bring “pain” in the form of higher unemployment and possibly a recession.

“Looking ahead, risks are to the downside, to consumption in particular, as households continue to face challenges from high prices and likely slower job growth going forward,” Rubeela Farooqi, chief US economist at High Frequency Economics, wrote in a research note.

With inflation still near a 40-year high, steady price spikes have been pressuring households across the country. At the same time, rising loan rates have derailed the housing market and are likely to inflict broader damage over time. The outlook for the world economy, too, grows bleaker the longer that Russia's war against Ukraine drags on.

The latest GDP report comes as Americans, worried about inflation and the risk of a recession, have begun to vote in elections that will determine whether President Joe Biden's Democratic Party retains control of Congress. Inflation has become a signature issue for Republican attacks on the Democrats' stewardship of the economy.

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