The Surprising Growth of the U.S. Economy: Effects of Real Estate, Interest Rates, and Trade

With society on the edge of its seat in anticipation of a continued recession, the U.S. is going against expectations and is appearing to turn around the economy. The U.S. economy grew by in the third quarter of this year after declining by in the first quarter and in the second quarter, which by definition takes the economy out of a recession. This is introducing reduced fears of a future recession; however, it does not prove that the economy has fully recovered.

One quarter does not represent how the economy is performing. Chief economist, Jeffrey Roach, is not optimistic in saying "”. A , high interest rates, and an aggressive Federal Reserve are driving concerns for the economy’s future. The average interest rate for a 30-year mortgage recently topped , which is a level not seen since . This is contributing to the stagflation being seen in the housing market. There is also a decrease in investment into residential real estate, the worst level since the second quarter of  during the start of the pandemic. The significant weakening of the housing market is being attributed to several factors, including rises in , broker commissions, lower home sales, and lower home starts.

A decrease in investments and a significant rise in mortgage rates are leading many to view the housing market as one of the weakest areas of the economy. A survey by the Federal Home Loan Mortgage Corporation is representing a % rise in a week and a rise in a year. This is encouraging many potential homebuyers to wait to enter the market,  and leading new home sales to drop by % in the past month. Overall, median home prices have dropped by  just in the last few months. This is significantly hurting the construction industry, as construction projects are now more  following an increase in lumber and commodities. Even further, this is reducing the  companies in this industry are generating, and with supply chain constraints, the wait for construction materials is significantly longer. These factors are making a  number of new homes delay construction, naturally shifting residential construction companies to rely on  bids. 

The Central Bank is still fighting to lower inflation and planning to raise interest rates by points again in the near future, bringing interest rates to between . The U.S. is not alone in this fight, as the European Central Bank (ECB) recently raised interest rates by  for the second time in a row, bringing their interest rate to  which is the highest seen in Europe since . They plan on continuing to raise interest rates to  in the future. The ECB is also planning on changing rates on cheap short-term 3-year loans, which was used to ease policy several years ago, making  and encouraging banks to pay them back earlier. The ECB is staying vigilant in its fight against inflation, which reached a high of  last month.

A change in international trade patterns is part of the driving force behind the . Consumer spending did  overall, with more money going towards healthcare and other services, alongside a  in spending on goods such as cars, foods, and beverages. This is why net exports rose, leading to the rise in GDP showing that are starting to take a toll on consumers. On the upside, the stronger dollar which has followed the rise might benefit  as it means exports to America are cheaper; however, the rising rate in America means higher debt repayments for other countries, impacting less-developed countries more as they are needing loans.

The 2.6% increase, which beat estimates of , is a good sign of increased faith in the economy. Dean Baker, senior economist at the Center for Economic and Policy Research said, "the is likely to look something like a normal healthy economy." The rising exports of  and nonautomotive capital goods are also leading to the increase in GDP. The economy is showing signs of output growth coming back, but there is never a guarantee with so much uncertainty in our markets.