Economic Growth Slowed Down in Q3 but Net Exports Saved the Day

The U.S. economy is weak, as GDP numbers in both the second quarter and the third quarter have shown. The fundamental reason why the U.S. economy grew 2.6% during the third quarter of the year was because Net Exports, which is exports of goods and services less imports of goods and services, contributed 2.77 percentage points to economic growth during the quarter. Export growth was very strong, up 14.4%, while imports declined by 6.9%. This means that the U.S. sold a lot of goods and services to the rest of the world as it imported fewer goods from the rest of the world. Thus, all those firms/industries that cater to consumers around the world had a very good quarter, especially considering the strength in the U.S. dollar during this year. But most importantly, the reason why the U.S. economy was strong during the third quarter of the year wasn’t because of the domestic sectors, but just because the rest of the world imported lots of goods from the U.S.

In fact, personal consumption expenditures (PCE) increased 1.4% during the third quarter of the year after inching up by 2.0% during the second quarter. The consumption of goods was still strong and above pre - pandemic trend, but it has continued to slow down during the year. However, the service sector continued to recover from the severe downturn created by the COVID-19 pandemic.

Eugenio J. Alemán, PhD,
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The U.S. Service Sector Remains Defiant

As U.S. Federal Reserve (Fed) officials get ready for another Federal Open Market Committee (FOMC) meeting in early November, the U.S. economy seems to have avoided, for now, the worst consequences of the large increase in rates in such a short period of time. Perhaps the only exception has been the notable weakening of the U.S. housing market, which has followed an orderly slowdown process – very different from what happened in previous interest rate increase episodes. In fact, some sectors/regions of the U.S. housing market still show strong resilience to the surge in mortgage rates.