U.S. economic growth rebounded more than expected in the third quarter amid a continued decline in the trade deficit, but that overstates the economy's health as the Federal Reserve's aggressive interest rate increases curbed consumer spending.
Gross domestic product (GDP) increased at a 2.6-percent annualized rate last quarter, the Commerce Department said in its advance GDP estimate on Thursday, ending two straight quarterly decreases in output, which had raised concerns that the economy was in recession.
The economy contracted at a 0.6-percent pace in the second quarter.
Economists polled by Reuters had forecast GDP growth rebounding at a 2.4-percent rate. Estimates ranged from as low as a 0.8-percent rate to as high as a 3.7-percent pace.
While the economy may not be in recession, the risks of a downturn have increased as the Fed doubles down on rate hikes as it fights the fastest-rising inflation in 40 years. The U.S. central bank has raised its benchmark overnight interest rate from near zero in March to the current range of 3.00 percent to 3.25 percent, the swiftest pace of policy tightening in a generation or more.
The report will have little impact on monetary policy, with Fed officials watching September personal consumption expenditures price data and third quarter labor cost numbers due on Friday, ahead of their November 1 to 2 policy meeting.
The trade deficit narrowed sharply in part as slowing demand curbed the import bill. Exports also increased for much of last quarter. Wild swings in trade and inventories were behind the contraction in GDP in the first half of the year.
Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, slowed to 1.4-percent rate from the April-June quarter's 2.0-percent pace.
Consumer spending is being supported by a strong labor market, which is driving up wages. The Labor Department reported on Thursday a modest increase in the number of people filing new claims for unemployment benefits last week.
Initial claims for unemployment benefits increased 3,000 to a seasonally adjusted 217,000 for the week ended October 22. Claims have remained significantly low despite reports of companies, mostly in the interest rate-sensitive sectors of the economy, laying off workers.