America evades recession, again

By Joe Higgins, Quest 4 Quality

  • Gross domestic product increased by 4.9% in the third quarter
  • Highest increase in 24 months
  • But Q4 projections suggest a possible downturn

The U.S. Commerce Department had some surprising news last week.

It appears that America’s gross domestic product (GDP) grew 4.9% last quarter, which was the highest increase in two years and bested the 4.5% gain predicted by economists. Indeed, few expected this level of growth after the Federal Reserve spent nearly 20 months raising interest rates by 525 basis points. In a “normal” economy, the country would already be in recession. 

The report justifies my position that three key variables came together after the last two years to keep our economy strong: when you combine the current level of consumer confidence, the robust level of spending plus low unemployment, you get great economic results. 

However, I do believe that economic growth has topped out. Given the return of student loan payments, global risks in the Middle East and unsteady bond and stock markets, the next few quarters will not be so kind. The Atlanta Fed’s GDP Now forecast predicts Q4 growth of 2.3%, and most analysts see struggles ahead in 2024, as interest rates are expected to remain high all year. 

Most big banks called for a recession to start in 2022; when that did not happen, they updated their prediction for a downturn in 2023. The banks and the analysts were wrong, and we have now had three straight quarters of growth and are doing considerably better than our ten-year trend. The question I will put out there is this: Has the rise in interest rates tightened the economy enough that the Federal Reserve will now permanently pause interest rates? Or will inflation rear its ugly head and we go through another round of hikes like we did in 1980 and revisit the double-dip recession of that era?

America got a good report in Q3, but what does that mean going forward? The Fed decided not to raise rates in September and will most likely do the same at its next meeting. It has effectively lowered inflation from 9.1% last summer to 3.7% today. It’s not the 2% they’ve been looking for, but it is an improvement over the past year. Bond yields have jumped to their highest levels in 22 years, raising borrowing rates and slowing spending and lending. Consequently, mortgage rates have jumped to nearly 8%, thus doing the work of slowing down the housing market for the Fed. 

 Over the past 18 months, the U.S. economy has lowered inflation, held unemployment under 4%, maintained robust consumer spending and increased construction and manufacturing. It is a resilient economy that has beaten all expectations while easing inflation to near the Fed’s goal of 2% without causing a recession. It is what Fed Chair Jerome Powell calls a “soft landing,” and he believes there is a chance to move into next year without a downturn. Bank of America is also calling for a soft landing, and Goldman Sachs recently reduced its call on the likelihood of recession from 25% to 15%. 

The Bottom Line

Making predictions in today’s post-pandemic economy is problematic. The yield on a 10-year treasury bond is now slightly over 5%, something we have not witnessed in 20 years. It has pushed up mortgage rates to 8%, drove credit card interest rates to 24% and has perilously slowed down private lending. Any one of these factors could put a damper on what has been an extraordinary economy. 

What’s more, the $2.1 trillion consumers had in savings after the pandemic-related stimulus money was distributed is now estimated to be under $190 billion and falling. Most experts believe that savings will soon be depleted and will hit bottom. Consumer spending is 71% of GDP, which will slow as we move into 2024. This will put intense pressure on continued economic growth.

Next year is a tough call. I am putting 60% on a soft landing and 40% on a mild recession in the second quarter. But remember, even if we have a slight downturn, it will not be anything like what we lived through during the “Great Recession” of 2008.

Joe Higgins is a 46-year veteran of GE and Whirlpool Corp. who brings his executive experience to bear as a business consultant, AVB keynoter and YSN contributor. Visit his website, Quest 4 Quality with Joe, at

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