Play Live Radio
Next Up:
0:00 0:00
Available On Air Stations

New GDP report shows an economic turnaround, but don't be fooled

People shop in a Manhattan store on Oct. 26, 2022 in New York City. Inflation, in the form of higher prices for gas, food and other consumer goods is weighing on U.S. economic growth.
Spencer Platt
Getty Images
People shop in a Manhattan store on Oct. 26, 2022 in New York City. Inflation, in the form of higher prices for gas, food and other consumer goods is weighing on U.S. economic growth.

Updated October 27, 2022 at 8:39 AM ET

The government's official scorecard shows a rebound in economic growth during the late summer and early fall. But analysts say it overstates the strength of the U.S. economy, just as earlier figures painted an exaggerated picture of weakness.

A report from the Commerce Department released on Thursday shows the nation's gross domestic product grew at an annual rate of 2.6% in July, August and September. That's in contrast to the first six months of the year, when GDP figures showed the economy shrinking.

The apparent improvement, however, is largely the result of fluctuations in things like international trade, which don't reflect the underlying health of the economy. They made GDP look artificially weak in the first half of the year, while pumping up the most recent figure.

"If you take a step back and look at GDP, it's gone effectively nowhere over the last year," says Mark Zandi, chief economist at Moody's Analytics. "One quarter or two it's down a bit. This quarter it's up a bit. But net-net, we're kind of treading water."

The Federal Reserve is trying to hit the brakes on inflation, and curbing growth

While the labor market has been robust — adding nearly 3.8 million jobs in the first nine months of the year — high inflation and rising interest rates are expected to weigh on future economic growth.

That's already evident in the slumping housing market, a major component of GDP. Residential investment fell sharply in the third quarter.

"We still have a lot of people that want to buy new or even existing [houses], but they're completely getting squeezed out of the market," says Paul Schwinghammer, a home builder and president of the Indiana Builders Association.

The average rate on a 30-year fixed home loan has more than doubled in the last year — to around 7% — putting homes out of reach for many would-be buyers. As a result, builders broke ground on 8% fewer homes in September than the month before.

"As we finish homes, we're not going to be starting as many in the coming months and the next year as we had been in the last two years," Schwinghammer says.

That's not an accident. The Federal Reserve is deliberately raising borrowing costs in an effort to tamp down demand and curb inflation. Fed policymakers are expected to raise interest rates by another 0.75 percentage points when they meet next week.

Consumer spending, another big driver of GDP, has held up well so far, even though prices are climbing faster than most people's wages. Spending rose at an annual rate of 1.4% in the most recent quarter.

"Consumers are doing their part," Zandi says. "They're not spending with a lot of gusto, but they're out spending."

In some cases, people have been able to finance that spending by tapping extra savings that they piled up during the first two years of the pandemic when they weren't able to travel or eat out as much, and when the federal government was distributing lots of additional cash.

Average account balances are significantly higher now than they were in 2019, before the pandemic, with lower-income households seeing the biggest percentage increase, according to the JPMorgan Chase Institute, which tracks millions of personal checking accounts. Bank balances have begun to fall, however, so those savings won't prop up spending indefinitely.

As the Federal Reserve continues to hit the brakes, many forecasters expect the economy to slide into recession in the coming year. Zandi hopes the United States can avoid that, but he acknowledges it won't be easy.

"We need to catch a break," he says. "We've been pretty unlucky. We got nailed by a global pandemic, which is still creating havoc in many parts of the world. And the Russian invasion of Ukraine, which wasn't even on the radar screen a year ago. So we just need a little bit of luck."

Copyright 2022 NPR. To see more, visit

Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.