US economy grows for first time this year in third quarter

The US economy rebounded in the third quarter, expanding for the first time this year in welcome news for President Joe Biden days ahead of midterm elections, government data showed Thursday.

Economic issues have become a flashpoint in the United States, with decades-high inflation weighing on growth and squeezing households.

Fears of a downturn have intensified in the world's biggest economy after two quarters of negative growth, commonly viewed as a strong signal that a recession is underway -- a trend that would have global consequences and domestic political costs.

But gross domestic product rose at an annual rate of 2.6 per cent in the July to September period, according to the latest Commerce Department data.

Economic performance was helped by strong trade, even as weaker consumer spending on goods casts a pall on growth as higher prices bite.

Industrial supplies and materials, notably petroleum and products, kept exports strong.

But in consumer spending, an increase in services led by health care and other areas was "partly offset" by a drop in products like motor vehicles and parts, along with food and beverages, data showed.

The US economy shrank 0.6 per cent in the second quarter, according to revised numbers, after a larger decline in the first three months this year.

Biden has insisted that the US economy is on the right path, but analysts warn of risks ahead, as households grapple with soaring prices and draw down on their savings.

Republicans have blamed Democrats for worsening price spikes through runaway spending, though inflation is a global issue that presidents have limited power over.

Households have been reeling from decades-high inflation this year, with prices soaring on supply chain snarls due to Covid-19 lockdowns and fallout from Russia's invasion of Ukraine, which sent food and energy costs rocketing.

And analysts caution that risks are rising in the months ahead, as household spending could weaken further.

To lower price pressures, the US central bank has embarked on aggressive interest rate hikes, walking a tightrope as it tries to avoid tipping the economy into a recession.

Already, there are signs of stress, such as a weakening in the housing sector, which is more sensitive to interest rates, said Rubeela Farooqi, chief US economist at High Frequency Economics, in a recent analysis.

Federal Reserve officials are expected to press on with rate increases at policymakers' meeting next week, in the face of persistently high prices.