The Dow fell sharply as the US economy grew much faster than previously thought in the third quarter, a sign that the Fed’s battle to cool the economy to fight inflation is having only a limited effect.
The Commerce Department’s latest reading Thursday morning showed that gross domestic product, the broadest measure of the US economy, grew at an annual pace of 3.2% between July and September. This was higher than the 2.9% estimate from the previous month. Economists polled by Refinitiv expected GDP to remain unchanged from the previous reading.
The stronger-than-expected reading was due to increases in exports and consumer spending, which were partially offset by a decline in spending on new housing, the report said. Consumer spending is responsible for more than two-thirds of a country’s economic activity.
US stocks fell on Thursday on concerns that a stronger-than-expected gross domestic product could prompt the Federal Reserve to continue raising interest rates more than expected in 2023. The Dow Jones lost more than 700 points, or 2.2%, while the S&P 500 fell. by 2.7%, and the Nasdaq fell by 3.7 percent.
“The data has been stronger across the board, and if there’s anything the Fed doesn’t want to see these days, it’s better than expected data,” said Paul Hickey of Bespoke Investment Group.
Fed was raise interest rates Throughout the year to calm the demand for goods and services and reduce inflation. Economists have been concerned for some time that the Fed’s actions might tip the US economy into it Recession Next year.
“The reality of the Fed’s decision pales in,” said David Kotok, chairman and chief investment officer of Cumberland Advisors, referring to efforts to get the economy back on track toward 2% inflation. “I don’t see how a recession can be avoided unless the Fed changes its policy.”
The significant slowdown in the market on Thursday could be helped by weak year-end trading.
“Part of the wide volatility we’re seeing is part of the year-end illiquidity as many traders and investors take a vacation and every new data is over-inferred either way,” noted Keith Lerner, chief market strategist at Truist Advisory Services.
Inflation cooled In recent readings, however, the US economy has remained strong. Some surveys released this week suggest that higher Fed rates are not slowing business or consumer spending.
newly Survey of Chief Financial Officers It found that the current level of interest rates did not affect their spending plans. And the Consumer confidence December improved according to a survey by the Conference Board, reaching the highest level since April.
A separate Labor Department report on Thursday showed that jobless claims remained relatively unchanged.
Initial weekly claims for unemployment insurance benefits rose to 216,000 for the week ending Dec. 17. The previous week’s total was revised up by 3,000 to 214,000.
Economists had expected initial claims to the land at 222,000, according to Refinitiv.
Weekly initial claims totals hover around pre-pandemic levels. In 2019, the average weekly claims were 218,000.
Continuing claims, which includes people who collect benefits continuously, fell slightly to 1.672 million for the week ending Dec. 10. The number of continuing claims for the previous week was revised down to 1.678 million.
Mortgage rates, meanwhile, fell again last week — the sixth week in a row — with the average 30-year fixed-rate mortgage falling to 6.27% from 6.31% the week before, according to Freddie Mac. A year ago at this time, a 30-year mortgage had a fixed rate of 3.05%.
“Prices have fallen significantly over the past six weeks, which is beneficial for potential homebuyers,” said Sam Khater, chief economist at Freddie Mac.
The final GDP report is one of the government’s most retrospective reads, looking at the state of the economy for nearly three months. Current forecasts from economists indicate that growth in the current period will be only 2.4%, which is much slower than Thursday’s reading.
— CNN’s Anna Bahney and Matt Egan contributed to this report
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