US Economy Grows 2.6%, After Two Straight Quarterly Falls

US Economy Grows 2.6%, After Two Straight Quarterly Falls
Paul Allison, CFA

over 1 year ago1 min

The US economy rebounded in the third quarter growing by an annual rate of 2.6%, after two consecutive quarters in the red, fresh data out Thursday showed.

And that certainly seems like welcome news. It suggests that the US has had its “technical” recession – defined as two straight quarters of declines in annualized economic growth – and somehow shook it off. But did it? Or was the third quarter just a late summer vacay before a pending chilly winter?

Probably the latter. See, the statistics we’re talking about (i.e. gross domestic product, or GDP, generally considered the broadest measure of all the goods and services an economy puts out) are old news by the time they are printed. And for markets, what happened between June and September is already ancient history. And unfortunately, forward-looking indicators like the Institute of Supply Management’s purchasing managers index (PMI) or The Conference Board’s leading economic indicators (LEI) – released monthly – are all pointing the wrong way.

Take the manufacturing PMI. September’s data showed the sector is still growing – just barely – but at its lowest pace since May 2020, with a reading of 50.9 (a number above 50 means it’s expanding, while a number below means it’s contracting). But subcomponents of the index like new orders (which are completely forward-looking) have dipped below 50 – so they’re contracting.

So sure, let the GDP number sink in and breathe a sigh of relief if you like: after all, a positive number’s better than a negative one. But for a more telling read on the future, shift your attention to next month’s PMI and LEI data. They’re likely to give you a much better indication of where the US economy is headed.

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