Economy returned to growth last quarter, expanding 2.6%

WASHINGTON (AP) — The U.S. economy grew at a 2.6% annual rate from July through September, snapping two straight quarters of contraction and overcoming high inflation and interest rates just as voting begins in midterm elections in which the economy's health has emerged as a paramount issue.

Thursday's better-thanexpected estimate from the Commerce Department showed that the nation's gross domestic product — the broadest gauge of economic output — grew in the third quarter after having shrunk in the first half of 2022. Stronger exports and consumer spending, backed by a healthy job market, helped restore growth to the world's biggest economy at a time when worries about a possible recession are rising.

Consumer spending, which accounts for about 70% of U.S. economic activity, expanded at a 1.4% annual pace in the July-September quarter, down from a 2% rate from April through June. Last quarter's growth got a major boost from exports, which shot up at an annual pace of 14.4%. Government spending also helped: It rose at a 2.4% annual pace, the first such increase since early last year, with sharply higher defense spending leading the way.

Housing investment, though, plunged at a 26% annual pace, hammered by surging mortgage rates as the Federal Reserve aggressively raises borrowing costs to combat chronic inflation. It was the sixth straight quarterly drop in residential investment.

Overall, the outlook for the overall economy has darkened. The Fed has raised interest rates five times this year and is set to do so again next week and in December. Chair Jerome Powell has warned that the Fed's hikes will bring "pain" in the form of higher unemployment and possibly a recession.

"Looking ahead, risks are to the downside, to consumption in particular, as households continue to face challenges from high prices and likely slower job growth going forward,'' Rubeela Farooqi, chief U.S. economist at High Frequency Economics, wrote in a research note.

With inflation still near a 40year high, steady price spikes have been pressuring households across the country. At the same time, rising loan rates have derailed the housing market and are likely to inflict broader damage over time. The outlook for the world economy, too, grows bleaker the longer that Russia's war against Ukraine drags on.