GDP is back and growing! Actually it was always growing, but inflation went down

Haven't heard GOPs try to snark about "recession" recently. Today's GDP report explains why.

JUST IN: The US grew at a 2.6% pace in Q3, a big rebound from the negative growth in the first half of the year. (-0.6% in Q2 and -1.6% in Q1).

The US isn’t in a recession now, but fears are still high for 2023.

— Heather Long (@byHeatherLong) October 27, 2022

Read the report right here. GDP growth is back baby!

How we did swing to this level of growth? Mostly because the drop in gas prices led to a drop in inflation, unlike how the higher inflation of Q1 and Q2 caused real GDP to go down. This means that a lower rate of growth in actual dollars translated into solid real GDP growth.

Current-dollar GDP increased 6.7 percent at an annual rate, or $414.8 billion, in the third quarter to a level of $25.66 trillion. In the second quarter, GDP increased 8.5 percent, or $508.0 billion.

The price index for gross domestic purchases increased 4.6 percent in the third quarter, compared with an increase of 8.5 percent in the second quarter. The PCE price index increased 4.2 percent, compared with an increase of 7.3 percent. Excluding food and energy prices, the PCE price index increased 4.5 percent, compared with an increase of 4.7 percent.

So really not a lot changed throughout the first 9 months of 2022, except that price increases leveled off after June. And when you remove the rollercoaster ride in inflation for gas and the effect of higher food prices, we see decent growth in general consumption for 2022, even if it slowed a bit in Q3.

Still, 2-3% increases in underlying consumption isn't bad, and is not what you'd see in a recessionary situation. However, there is another area of the economy that does seem to be declining quickly.

The Fed rate hikes have triggered a housing recession.

There was a massive drop in construction in Q3 for both business buildings and residential.

Residential investment in Q3: -26.4% -->basically as bad as spring 2020 when the pandemic first hit.
Biz structures in Q3: -15.3% pic.twitter.com/6FqPjoV1nH

— Heather Long (@byHeatherLong) October 27, 2022

The residential homebuilding sector took away nearly 1.4% of total GDP growth in Q3 after subtracting 0.93% in Q2. This seems to be a 1-2 punch of Bubbly home prices in late 2021 and early 2022 followed by higher interest rates. And that home-building recession along with lower inflation and gas prices in Q3 are all the more reason that the Fed should stop looking backward or trying to hit a pre-COVID target of 2%.

Instead, the Fed should do interest rate policy based on what the economy and inflation tell us today. Right now, data indicates we have a low-to-moderate growth economy with low unemployment, and inflation already cooling toward an annual rate of 4-5%. I don’t see this as bad thing, and me and I bet a whole lot of others would accept this as a new normal, even if Wall Street bankers and other oligarchs won’t.

And in a sane world, this situation would stop all of the INFLATION PANIC garbage we continue to hear, and instead make us ask how we can keep this going in 2023.