Strong Q3 but higher interest rates may finally begin to bite
Consumers are rounding out a strong third quarter which should result in another acceleration for real GDP growth to an annualized pace above 4.0 percent. But the momentum for spending is waning in the face of even higher interest rates and lingering inflation, while job gains continue to weaken. Moreover, the resumption of student loan payments, a likely government shutdown, and ongoing auto strikes set the stage for a sharp growth slowdown in the fourth quarter. Still, the long-awaited recession should be delayed into early 2024 and we expect the downturn to be modest in length and severity with activity rebounding over the second half of next year. Monetary policy should remain restrictive well into 2024, a downside risk for a deeper recession should the lack of credit and worsening affordability cut into consumer and business activity more than expected.