The U.S. economy grew faster than initially thought in the third quarter, but momentum appears to have cooled since then as higher borrowing costs are restraining hiring and spending.
U.S. gross domestic product rose at an annualized rate of 5.2% last quarter, revised upward from the previously reported 4.9% pace, the Commerce Department said in its second estimate of third-quarter GDP. . This was the fastest pace of expansion since the fourth quarter of 2021.
Economists polled by Reuters expected GDP growth to be revised upwards to a rate of 5.0%.
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The economy grew at a pace of 2.1% in the April-June quarter and is expanding at a pace well above what Federal Reserve officials consider a non-inflationary growth rate of about 1.8%.
The upward revision to last quarter's growth reflected improvements in business investment as well as state and local government spending. Residential investment was also revised upward, as was investment in private inventories.
However, consumer spending growth, which accounts for more than two-thirds of U.S. economic activity, was revised down to a still-solid rate of 3.6%. Previously, a rate of 4.0% was estimated.
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Consumer spending appears to have cooled significantly at the start of the fourth quarter, and retail sales fell in October for the first time in seven months. The labor market is also cooling and job growth slowed last month, with the unemployment rate rising to a nearly two-year high of 3.9%.
The slowdown in demand has raised optimism that the Federal Reserve is unlikely to raise interest rates again this cycle, with financial markets even predicting a cut in mid-2024.
Since March 2022, the US central bank has raised its benchmark interest rate by 5.25 percentage points to the current range of 5.25% to 5.50%.
