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The U.S. Economy Grew, but It’s Not as Good as It Looks

Fri, Oct 28, 2022 7:51amGrey Clock 3 min

The U.S. economy grew at a surprisingly high 2.6% annual rate in the third quarter, reversing two consecutive quarters of declines. But beneath the strong headline number were signs that consumers are feeling the pinch of inflation and that the housing market has been hit by this year’s dramatic rise in interest rates.

Nevertheless, quarterly growth of this magnitude should reassure investors that the U.S. has not, at this point, been plunged into recession. Fears of an economic slowdown have been front of mind this year amid a dramatic tightening of financial conditions by the Federal Reserve. The central bank is attempting to get inflation, which is at its hottest in decades, under control by boosting interest rates.

But one quarter of growth doesn’t mean the risk of a slowdown has passed.

“The trajectory for growth looks weak,” said Jeffrey Roach, the chief economist at LPL Financial. “A deteriorating housing market and nagging inflation along with an aggressive Federal Reserve puts the economy on unsure footing for 2023.”

The market reaction was still upbeat. The Dow Jones Industrial Average was rising 375 points, or 1.2%, on Thursday.

After all, the result was a significant surprise to the upside. Economists surveyed by FactSet had estimated that the economy grew at a 2% annual rate in the three months to the end of September, following declines of 0.6% and 1.6% in the second and first quarter, respectively. The first half of the year marked a technical recession, defined as two consecutive quarters of negative gross domestic product growth.

The rise in third-quarter growth reflected net increases in exports, matching expectations that the trade deficit had narrowed as a result of a steep drop in imports, in part due to bloated inventories at some retailers. It was much fewer imports of consumer goods that led to the overall decline.

International trade dynamics may have been what ultimately delivered such strong growth in GDP, but investors would do well to examine some of the more telling components in the data.

Consumer spending increased overall, reflecting money flowing to healthcare and other services. But shoppers stopped digging as deep in their pockets to purchase goods, with data showing a deceleration of spending on cars, parts, and food and beverages. This was the third straight quarter in which goods spending fell, indicating a squeeze on consumers.

Amid signs that inflation remains persistently high—with two more interest-rate decisions due from the Federal Reserve this year—these trends are important.

As are indications that the U.S. is facing a slowdown in the housing market. GDP growth was primarily weighed down by a decrease in residential housing investment, and especially single-family home construction. The Fed’s hawkish shift on interest rates has had a knock-on effect on the mortgage market and created what some economists have called a housing recession.

The data out Thursday may be as good as it gets for a while.

“We expect 3Q22 to mark the peak in quarterly growth, as the cumulative effect of tighter monetary policy begins to push growth below potential,” said Ellen Zentner, the chief U.S. economist at Morgan Stanley. The bank expects to see GDP growth in the fourth quarter of just 0.8%.

“There’s a distinct possibility that Q3 could be the last hurrah for this post-pandemic economic expansion, as the U.S. faces material economic headwinds as a result of the Fed’s aggressive tightening cycle,” said Michael Reynolds, vice president of investment strategy at Glenmede.

The growth picture is likely to get gloomier as the full impact of the Fed’s monetary policy ripples across the economy—a process that can take many months or a year. The central bank is expected to hike rates by 75 basis points, or three quarters of a percentage point, for the fourth time since June next week. That, and another rate decision in December, will only show up in the data deep in 2023.

By that point, this year’s third quarter likely will look even better.


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At the World Plogging Championship, contestants have lugged in tires, TVs and at least one Neapolitan coffee maker

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GENOA, Italy—Renato Zanelli crossed the finish line with a rusty iron hanging from his neck while pulling 140 pounds of trash on an improvised sled fashioned from a slab of plastic waste.

Zanelli, a retired IT specialist, flashed a tired smile, but he suspected his garbage haul wouldn’t be enough to defend his title as world champion of plogging—a sport that combines running with trash collecting.

A rival had just finished the race with a chair around his neck and dragging three tires, a television and four sacks of trash. Another crossed the line with muscles bulging, towing a large refrigerator. But the strongest challenger was Manuel Jesus Ortega Garcia, a Spanish plumber who arrived at the finish pulling a fridge, a dishwasher, a propane gas tank, a fire extinguisher and a host of other odds and ends.

“The competition is intense this year,” said Zanelli. Now 71, he used his fitness and knack for finding trash to compete against athletes half his age. “I’m here to help the environment, but I also want to win.”

Italy, a land of beauty, is also a land of uncollected trash. The country struggles with chronic littering, inefficient garbage collection in many cities, and illegal dumping in the countryside of everything from washing machines to construction waste. Rome has become an emblem of Italy’s inability to fix its trash problem.

So it was fitting that at the recent World Plogging Championship more than 70 athletes from 16 countries tested their talents in this northern Italian city. During the six hours of the race, contestants collect points by racking up miles and vertical distance, and by carrying as much trash across the finish line as they can. Trash gets scored based on its weight and environmental impact. Batteries and electronic equipment earn the most points.

A mobile app ensures runners stay within the race’s permitted area, approximately 12 square miles. Athletes have to pass through checkpoints in the rugged, hilly park. They are issued gloves and four plastic bags to fill with garbage, and are also allowed to carry up to three bulky finds, such as tires or TVs.

Genoa, a gritty industrial port city in the country’s mountainous northwest, has a trash problem that gets worse the further one gets away from its relatively clean historic core. The park that hosted the plogging championship has long been plagued by garbage big and small.

“It’s ironic to have the World Plogging Championship in a country that’s not always as clean as it could be. But maybe it will help bring awareness and things will improve,” said Francesco Carcioffo, chief executive of Acea Pinerolese Industriale, an energy and recycling company that’s been involved in sponsoring and organizing the race since its first edition in 2021. All three world championships so far have been held in Italy.

Events that combine running and trash-collecting go back to at least 2010. The sport gained traction about seven years ago when a Swede, Erik Ahlström, coined the name plogging, a mashup of plocka upp, Swedish for “pick up,” and jogging.

“If you don’t have a catchy name you might as well not exist,” said Roberto Cavallo, an Italian environmental consultant and longtime plogger, who is on the world championship organizing committee together with Ahlström.

Saturday’s event brought together a mix of wiry trail runners and environmental activists, some of whom looked less like elite athletes.

“We like plogging because it makes us feel a little less guilty about the way things are going with the environment,” said Elena Canuto, 29, as she warmed up before the start. She came in first in the women’s ranking two years ago. “This year I’m taking it a bit easier because I’m three months pregnant.”

Around two-thirds of the contestants were Italians. The rest came from other European countries, as well as Japan, Argentina, Uruguay, Mexico, Algeria, Ghana and Senegal.

“I hope to win so people in Senegal get enthusiastic about plogging,” said Issa Ba, a 30-year-old Senegalese-born factory worker who has lived in Italy for eight years.

“Three, two, one, go,” Cavallo shouted over a loudspeaker, and the athletes sprinted off in different directions. Some stopped 20 yards from the starting line to collect their first trash. Others took off to be the first to exploit richer pickings on wooded hilltops, where batteries and home appliances lay waiting.

As the hours went by, the athletes crisscrossed trails and roads, their bags became heavier. They tagged their bulky items and left them at roadsides for later collection. Contestants gathered at refreshment points, discussing what they had found as they fueled up on cookies and juice. Some contestants had brought their own reusable cups.

With 30 minutes left in the race, athletes were gathering so much trash that the organisers decided to tweak the rules: in addition to their four plastic bags, contestants could carry six bulky objects over the finish line rather than three.

“I know it’s like changing the rules halfway through a game of Monopoly, but I know I can rely on your comprehension,” Cavallo announced over the PA as the athletes braced for their final push to the finish line.

The rule change meant some contestants could almost double the weight of their trash, but others smelled a rat.

“That’s fantastic that people found so much stuff, but it’s not really fair to change the rules at the last minute,” said Paul Waye, a Dutch plogging evangelist who had passed up on some bulky trash because of the three-item rule.

Senegal will have to wait at least a year to have a plogging champion. Two hours after the end of Saturday’s race, Ba still hadn’t arrived at the finish line.

“My phone ran out of battery and I got lost,” Ba said later at the awards ceremony. “I’ll be back next year, but with a better phone.”

The race went better for Canuto. She used an abandoned shopping cart to wheel in her loot. It included a baby stroller, which the mother-to-be took as a good omen. Her total haul weighed a relatively modest 100 pounds, but was heavy on electronic equipment, which was enough for her to score her second triumph.

“I don’t know if I’ll be back next year to defend my title. The baby will be six or seven months old,” she said.

In the men’s ranking, Ortega, the Spanish plumber, brought in 310 pounds of waste, racked up more than 16 miles and climbed 7,300 feet to run away with the title.

Zanelli, the defending champion, didn’t make it onto the podium. He said he would take solace from the nearly new Neapolitan coffee maker he found during the first championship two years ago. “I’ll always have my victory and the coffee maker, which I polished and now display in my home,” he said.

Contestants collected more than 6,600 pounds of trash. The haul included fridges, bikes, dozens of tires, baby seats, mattresses, lead pipes, stoves, chairs, TVs, 1980s-era boomboxes with cassettes still inside, motorcycle helmets, electric fans, traffic cones, air rifles, a toilet and a soccer goal.

“This park hasn’t been this clean since the 15 century,” said Genoa’s ambassador for sport, Roberto Giordano.


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