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US economy grows at fastest pace in nearly two years in third quarter of 2023

The US economy grew at its fastest pace in nearly two years in the third quarter as higher wages from a tight labor market helped to power consumer spending, again defying dire warnings of a recession that have lingered since 2022.

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Gross domestic product increased at a 4.9% annualized rate last quarter, the fastest since the fourth quarter of 2021, the commerce department’s Bureau of Economic Analysis said in its advance estimate of third-quarter GDP growth. Economists polled by Reuters had forecast GDP rising at a 4.3% rate.

The US’s economic resilience faces challenges. Interest rates remain high and are likely to remain so as the Federal Reserve continues its fight against rising inflation. War in Ukraine and the Middle East may also hit the economy, as could the looming likelihood of a US government shutdown next month.

Growth could also slow in the fourth quarter because of the United Auto Workers strikes and the resumption of student loan repayments by millions of Americans.

But the US has shaken off previous threats to the economy, which grew at a 2.1% pace in the April-June quarter and is expanding at a rate well above what Fed officials regard as the non-inflationary growth rate of around 1.8%.

Most economists have revised their forecasts and now believe that the Fed can engineer a “soft-landing” for the economy, bringing down inflation without triggering a recession.

Consumer spending, which accounts for more than two-thirds of US economic activity, was the main driver of growth, rising at an annual rate of 4.0% over the quarter. A strong labor market and wage growth that is slightly above the rate of inflation lifted households’ purchasing power.

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The US economy has achieved a remarkable recovery from the Covid-19 pandemic downturn. The annual rate of inflation has fallen to 3.7% from a 40-year high of 9.1% in June 2022 and unemployment is close to a 50-year low.

Joe Biden has, however, received little credit. A Harris poll conducted for the Guardian showed two-thirds of Americans believe the economy is worse than is being reported.

Reuters contributed to this article