The US economy grew a stellar 4.9% from July through September, driven by robust consumer spending despite the Federal Reserve’s efforts to slow the economy with high-interest rates.
Thursday’s estimate from the Commerce Department showed that the nation’s gross domestic product — the broadest gauge of the economy’s total output of goods and services — was the fastest quarterly advance in nearly two years.
Last quarters robust GDP growth was far above the 2.1% growth rate in the April-to-June quarter.
Despite inflation, the Commerce Department reported that Americans drove the economy by stepping up their spending, splashing out on everything from movies and Taylor Swift concert tickets to restaurant meals.
However, the economy is expected to experience a steady slowdown in the current October-to-December quarter and into early 2024, especially if the Fed implements another interest rate hike and the housing market remains sluggish.
A recent survey by CNBC-Morning Consult showed just that, with more than three-quarters of respondents, 76%, saying they plan to be frugal through the holidays.
Of the 4,403 US adults polled last month, 62% said they plan on budgeting sometimes or more often in the upcoming six months, CNBC found — during retailers all-important holiday shopping season.
On top of sky-high borrowing rates currently plaguing the housing market — the average long-term rate hit 8% for the first time since 2000 last week, per Mortgage Daily News — some 30 million Americans began repaying student loans, which could slow their ability to spend in the fourth quarter.
Those loan repayments had been suspended since the pandemic first struck three years ago.
Brisk consumer spending typically leads companies those that sell physical goods as well as those, like restaurants and entertainment venues, in the economys vast service sector to raise prices, thereby fueling inflation.
Fed officials have acknowledged the pickup in growth, which could potentially undercut their efforts to fight inflation, which rose 3.7% in September.
Last month’s advance was more than economists expected — and a sharp decline from June 2022’s four-decade high of 9.1% — though it’s still well above central bankers’ 2% goal.
A blockbuster September employment report revealed that the US economy added a whopping 336,000 jobs last month an unexpected surge that contradicts the notion the Fed may tamp down its aggressive tightening regime.
However, it still remains unclear whether the latest GDP figure will have much impact on the Fed’s upcoming Nov. 1 decision on interest rates, which officials have suggested may increase one more time ahead of the new year.
Fed Chari Jerome Powell said in a discussion at the Economic Club of New York last week: “We certainly have a very resilient economy on our hands.”
“Many forecasts called for the US economy to be in recession this year. Not only has that not happened; growth is now running for this year above its longer-run trend. So thats been a surprise,” he added.
If those trends continue, it could allow the Fed to achieve a highly sought-after soft landing, in which the central bank would manage to slow inflation to its 2% target without causing a deep recession.
At the same time, Powell has suggested that if the economy keeps growing robustly, the Fed might have to raise rates further. Its benchmark short-term rate — which affects the rates on many consumer and business loans — currently sits between 5.25% and 5.5%, a 22-year high.
Last month, Fed officials unanimously decided to hold the record-high rate steady for the second time in six policy meetings so far this year.
“Additional evidence of persistently above-trend growth could put further progress on inflation at risk and could warrant further tightening of monetary policy,” Powell said last week.
LAS VEGAS — Golden Knights captain Mark Stone, back in the lineup after being out for more than a month because of a wrist injury, scored a tying power-play goal in the third period Wednesday, but Vegas dropped a 4-3 shootout loss to the Ottawa Senators.
Vegas dropped to 1-8 in overtime games. The Golden Knights have points in seven of eight games, but four were overtime losses.
Stone, who was placed on injured reserve Oct. 20, had 13 points in his first six games before getting hurt.
“It’s good to have his energy back,” coach Bruce Cassidy said before Wednesday’s loss. “He’s good on the bench. He’s a leader. It’s just nice to have him back. He makes our team better.”
Stone had been skating with the Golden Knights’ American Hockey League affiliate in Henderson, Nevada.
“If I didn’t have that, I’d probably be looking more at Friday,” Stone said of his return. “Everything’s healed. I got the practices I needed. I’m ready to go.”
Stone was on the top line when he was injured but was on the third-line center against the Senators, with Mitch Marner moving to wing. Braeden Bowman, a 22-year-old rookie, remained on the top line with Jack Eichel and Ivan Barbashev.
This was not the first time the 33-year-old Stone has been injured in recent seasons. He played 66 games last season, his most since the 2018-19 season.
“Every injury is frustrating,” Stone said before Wednesday’s game. “I don’t enjoy rehabbing. I’ve unfortunately gotten good at it. I understand the best way to go about it, but no rehab’s fun. I don’t wish it on anyone. I’m excited to be back.”
Sticking to Labour’s manifesto pledge and freezing income tax thresholds rather than raising income tax has hurt low- and middle-income earners, an influential thinktank has said.
Millions of these workers “would have been better off with their tax rates rising than their thresholds being frozen”, according to the Resolution Foundation’s chief executive, Ruth Curtice.
“Ironically, sticking to her manifesto tax pledge has cost millions of low-to-middle earners”, she said.
Chancellor Rachel Reeves announced in her budget speech that the point at which people start paying higher rates of tax has been held. It means earners are set to be dragged into higher tax bands as they get pay rises.
The chancellor felt unable to raise income tax as the Labour Party pledged not to raise taxes on working people in its election manifesto.
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3:47
Budget: What does the public think?
But many are saying that pledge was broken regardless, as the tax burden has increased by £26bn in this budget.
When asked by Sky News whether Ms Reeves would accept she broke the manifesto pledge, she said:
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“I do recognise that yesterday I have asked working people to contribute a bit more by freezing those thresholds for a further three years from 2028.”
“I do recognise that that will mean that working people pay a bit more, but I’ve kept that contribution to an absolute minimum”.
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The Resolution Foundation thinktank, which aims to raise living standards, welcomed measures designed to support people with the cost of living, such as the removal of the two-child benefit cap, which limited the number of children families could claim benefits for.
The announced reduction in energy bills through the removal of as yet unspecified levies was similarly welcomed.
The chancellor said bills would become £150 cheaper a year, but the foundation said typical energy bills will fall by around £130 annually for the next three years, “though support then fades away”.
More to come
This budget won’t be the last of it, Ms Curtice said, as economic growth forecasts have been downgraded by independent forecasters the Office for Budget Responsibility (OBR), and growth is a “hurdle that remains to be cleared”.
“Until that challenge is taken on, we can expect plenty more bracing budgets,” she added.
It comes despite Ms Reeves saying as far back as last year, there would be no more tax increases.
Ultimately, though, the foundation said, “The great drumbeat of doom that preceded the chancellor’s big day turned out to be over the top: the forecasts came in better than many had feared.”
On the edge of the Chilterns and 30 minutes from central London by train, it’s Britain’s most expensive market town for first-time buyers. It’s also been voted one of the top 10 best, and top 20 happiest, places to live in the country.
Last summer Labour did well in the polls here too. Hitchin’s 35,000 inhabitants, with above average earnings, levels of employment, and higher education, ejected the Conservatives for the first time in more than 50 years.
Having swept into affluent southern constituencies, Rachel Reeves is now asking them to help pay for her plans via a combination of increased taxes on earnings and savings.
While her first budget made business bear the brunt of tax rises, the higher earners of Hitchin, and those aspiring to join them, are unapologetically in the sights of the second.
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2:37
How will the budget impact your money?
Kai Walker, 27, runs Vantage Plumbing & Heating, a growing business employing seven engineers, all earning north of £45,000, with ambition to expand further.
He’s disappointed that the VAT threshold was not reduced – “it makes us 20% less competitive than smaller players” – and does not love the prospect of his fiancee paying per-mile to use her EV.
But it’s the freeze on income tax thresholds that will hit him and his employees hardest, inevitably dragging some into the 40% bracket, and taking more from those already there.
“It seems like the same thing year on end,” he says. “Work harder, pay more tax, the thresholds have been frozen again until 2031, so it’s just a case where we see less of our money. Tax the rich has been a thing for a while or, you know, but I still don’t think that it’s fair.
“I think with a lot of us working class, it’s just a case of dealing with the cost. Obviously, we hope for change and lower taxes and stuff, but ultimately it’s a case of we do what we’re told.”
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3:00
‘We are asking people to contribute’
Reeves’s central pitch is that taxes need to rise to reset the public finances, support the NHS, and fund welfare increases she had promised to cut.
In Hitchin’s Market Square it has been heard, but it is strikingly hard to find people who think this budget was for them.
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8:41
OBR gives budget verdict
Jamie and Adele Hughes both work, had their first child three weeks ago, and are unconvinced.
“We’re going to be paying more, while other people are going to be getting more money and they’re not going to be working. I don’t think it’s fair,” says Adele.
Jamie adds: “If you’re from a generation where you’re trying to do well for yourself, trying to do things which were once possible for everybody, which are not possible for everybody now, like buying a house, starting a family like we just have, it’s extremely difficult,” says Jamie.
Image: Hitchen ditched the Conservatives for Labour at the 2024 election
Liz Felstead, managing director of recruitment company Essential Results, fears the increase in the minimum wage will hit young people’s prospects hard.
“It’s disincentivising employers to hire younger people. If you have a choice between someone with five years experience or someone with none, and it’s only £2,000 difference, you are going to choose the experience.”
After five years, the cost of living crisis has not entirely passed Hitchin by. In the market Kim’s World of Toys sells immaculately reconditioned and repackaged toys at a fraction of the price.
Demand belies Hitchin’s reputation. “The way that it was received was a surprise to us I think, particularly because it’s a predominantly affluent area,” says Kim. “We weren’t sure whether that would work but actually the opposite was true. Some of the affluent people are struggling as well as those on lower incomes.”
Customer Joanne Levy, shopping for grandchildren, urges more compassion for those who will benefit from Reeves’s spending plans: “The elderly, they’re struggling, bless them, the sick, people with young children, they are all struggling, even if they’re working they are struggling.”