ITR Experts Say Internal Forecasting

GDP: An Encouraging Change in Direction

By ITR Economics on November 10, 2022

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ITR Economics is the oldest, privately-held, continuously operating, economic research and consulting firm in the US.

According to the advance estimate released by the Bureau of Economic Analysis Oct. 27, third-quarter US Real Gross Domestic Product (GDP) was up 0.64% from the second quarter. If confirmed, this rise will mark a departure from the first and second quarters’ back-to-back instances of decline. After just meeting the technical definition of recession (two consecutive quarters of decline), GDP has posted rise again.

What It Means for You and Your Business

The change in direction is encouraging. At ITR Economics, we have for some time been advising our clients to expect flatness in GDP – slight rise or slight decline – into next year. The third-quarter bump-up is not a departure from that.

Nevertheless, the rise is a reassuring signal of a resilient US economy. The third-quarter rise would put GDP above the fourth-quarter-2021 level, and 4Q21 was the last instance of rise before the mild two-quarter downturn. The latest rise puts GDP at a new all-time high. For those whose businesses or markets tend to move with GDP: we think that GDP will avoid a recession in 2023. Unlike other voices that are calling the 3Q22 improvement a blip, we see it as an accurate reflection of a consumer that is willing and able to spend their money.

In this climate, successful business leaders will be confident and shrewd. Offensive moves should advance you in your markets but also advance your resiliency. For example: Can you expand operations while decreasing your dependence on labor, or at least not increasing your dependence on labor? Will the capital equipment you are eyeing help you grow not only your profit but also your profit percentage? It is important to keep investing in your information systems as opposed to battening down the hatches because of scary headlines.

Source of the Lift

According to the Bureau of Economic Analysis (BEA), the rise in GDP included gains in consumer spending, i.e., personal consumption expenditures. Though expenditures on goods declined slightly from the second quarter, expenditures on services – which comprise about 3/5 of total expenditures – rose enough to outweigh that.

An improved trade balance bolstered GDP as exports of both goods and services rose, while imports, which count against GDP, declined overall.

Government spending – expenditures and investment – increased, particularly federal defense spending and state and local government spending. We expect this trend to generally continue in 2023.

Also contributing to the rise in GDP was an increase in nonresidential fixed investment.

Points of Good News

The consumer strength suggested by the GDP figure is confirmed by other economic metrics:

  • Real Personal Income (excluding transfer payments) rose to a record high.
  • Real Personal Income (including transfer payments), which had been declining since the withdrawal of COVID-related government stimulus, posted rise (monthly and three-month moving average bases) throughout the third quarter.
  • Annual trends (12-month moving totals) for both nominal and deflated US Total Retail Sales are at record highs.


The Federal Reserve raised the federal funds target rate another 75 basis points on November 2, lifting it to 3.75−4%. This move does not surprise us, but it does raise the risk that the tightened monetary environment may hinder consumer and business-to-business activity, but most likely not before 2024. We are watching the 10-year to 3-month Treasury yield spread. Sustained inversion (more than two months) suggests a heightened downside risk to our forecast for macroeconomic business cycle rise in 2024.

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