US economy grew at faster-than-forecast 2.3% in third quarter

New-found strength came primarily from stronger consumer spending

Trucks entering a Port of Oakland shipping terminal in Oakland, California last month. Prospects for a solid rebound going forward are being clouded by rising worries about Omicron. AP

The US economy grew at a 2.3 per cent rate in the third quarter, slightly better than previously thought, the Commerce Department said on Wednesday.

But prospects for a solid rebound going forward are being clouded by the rapid spread of the Omicron variant of the coronavirus.

The third and final look at the performance of the gross domestic product, the nation's total output of goods and services, was higher than last month's estimate of 2.1 per cent growth in the third quarter.

The new-found strength came from primarily from stronger consumer spending than previously thought and businesses in rebuilding their inventories more than initial estimates revealed.

The 2.3 per cent third quarter gain follows explosive growth that began the year as the country began to emerge from the pandemic, at least economically. Growth soared to 6.3 per cent in the first quarter and 6.7 per cent in the second quarter.

The emergence of the Delta variant in the summer was blamed for much of the third quarter slowdown.

Now with the appearance of the Omicron variant, coming on top of high inflation and lingering supply chain issues, there are concerns about future growth prospects.

Those fears have sent the stock market on a turbulent ride in recent days although new optimism that the Omicron risks will be manageable allowed the Dow Jones industrial average to stage a 560-point rebound on Tuesday.

But many economists believe it is far too early to declare an all-clear on the threats posed by the new variant.

“History is repeating itself with the Covid virus suddenly reappearing and dampening economic growth prospects,” said Sung Won Sohn, an economics and business professor Loyola Marymount University.

Oxford Economics has trimmed its forecast for economic growth for the current quarter from 7.8 per cent to 7.3 per cent, which would still represent a sizable rebound from the slowdown seen in the third quarter.

Kathy Bostjancic, chief US financial economist for Oxford, said that not only Covid but also the dimming prospects for President Joe Biden’s $1.8 trillion spending plan to bolster social programmes and fight climate change were causing the forecasting firm to make downward revisions to its projections.

She said Oxford’s current assessment was that the resurgence of Covid could reduce growth next year from 4.3 per cent to 4.1 per cent and that if Biden’s Build Back Better programme is completely derailed, that could likely shave another 0.4 percentage points in 2022, lowering it to around 3.7 per cent and chop a half-point from growth in 2023, reducing it to below 2 per cent.

She said under these assumptions, job growth could be 750,000 lower by this time next year if economic growth slows as much as she fears.

“Omicron has been so rampant,” Ms Bostjancic said. “We think it is going to take a pretty toll on economic activity.”

And it is not just the resurgence of Covid that could hold the economy back next year. Inflation has spiked to the highest level in nearly four decades, prompting the Federal Reserve to start pulling back the massive amounts of support it has been providing to the economy as it switches from trying to boost job growth to fighting inflation.