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The economy may be doing better than you think... for now

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A version of this story was originally published in the CNN Business’ Before the Bell newsletter. Not a subscriber? you can register right here.

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The housing market is rapidly losing momentum. Interest rates continue to rise. The stock market continues to be volatile. And inflation remains a big problem for people trying to pay their bills.

Given all this, it is conceivable that the actual economic report card for the third quarter – gross domestic product or GDP – will be released on Thursday.

But here’s the thing.

Economists are actually predicting reasonable, if not spectacular, growth. The consensus estimate of economists polled by Reuters is that GDP grew at an annualized rate of 2.1% in the third quarter. (This will be the first forecast for third-quarter GDP and there will be several revisions in the coming weeks.)

The widely watched and respected GDPNow model has an even more rosy forecast from the Federal Reserve Bank of Atlanta, which tracks the latest economic data and found a projection for GDP. The latest GDPNow reading requires 2.9% annual growth.

Why so rosy despite all the gloomy news? First, a large portion of GDP is made up of consumer spending – and while we all complain about inflation, rising prices have yet to stop consumers’ splurge. Retail sales rose 8.2% in September from a year ago, according to figures from the government.

It also helps that the labor market is still healthy. American companies are adding hundreds of thousands of jobs per month, unemployment is close to a half-century low of 3.5%, and wages are rising (though not as fast as prices).

If GDP rises somewhere between 2% and 3% instead of contracting as it did in both the first and second quarters, that means we’re less likely to go into a recession. This will be good news for consumers, investors and the Federal Reserve.

This also means that the Fed will continue to raise interest rates sharply to stop inflation once and for all. Yes, this raises the possibility of an eventual recession down the road, as interest rates take time to affect much of the real economy, mortgage rates and housing are notable exceptions.

“Fed risks triggering US recession with interest rate. “But the greater risk is an economy at the mercy of rising prices,” ADP chief economist Nela Richardson said in a report. He argued that inflation can boost growth in nominal terms as consumers spend more…but it comes at a cost. It eats workers’ paychecks.

Still, beyond a strong third-quarter report, some economists are worried that growth will hit in the future.

“GDP from higher rates and a stronger dollar is huge,” Jeffries economists Aneta Markowska and Thomas Simons said in a report. They compared the current Fed tightening and aftermath to the Fed’s aggressively raising rates in the early 1980s to fight inflation under then-Fed chairman Paul Volcker.

These rate increases caused the so-called double-dip recession, in which the economy suffered two setbacks between 1980 and 1982.

Markowska and Simons also worry that the Fed is so focused on inflation that it won’t act fast enough to cut rates again once the economy shows longer signs of easing.

We also expect the Fed to be slow to respond to the economic weakness that will prolong and exacerbate the next recession, they said, adding that they do not believe the Fed will cut rates until the beginning of 2024… It could start in the third quarter of 2023.

In other words, the much-anticipated “soft landing” for the economy may turn out to be a pipe dream.

“An economic downturn is likely in 2023 due to the difficulty of achieving an overall soft landing. A soft landing will be even harder to achieve with inflation above 8 percent,” José Torres, senior economist at Interactive Brokers, said in a report.

“This recession may require the Fed to keep their feet on the brakes longer,” he added. “Combating high inflation while keeping economic growth positive is a challenge.”

Underline: The good news is that the economy is not yet in recession… and third-quarter GDP should support this view. The problem is, a setback is coming, probably at some point in 2023.

Earnings have helped support the stock market so far this month. But technology, an industry that typically does its best, will not please investors.

The results of social media company Snapchat (SNAP), which posted a bleak outlook, were not encouraging. Earnings from companies like Apple (AAPL), Amazon (AMZN), Google-owned Alphabet (GOOGL), Microsoft (MSFT), and Facebook’s parent company Meta may not be very promising, as CNN Business’s Clare Duffy points out.

The slowdown in online advertising will hurt many of these companies, notably Meta and Alphabet, which also owns YouTube. The strength of the dollar will also consume all its international sales and profits.

There is still hope that these tech giants will have a rosier outlook for the fourth quarter. After all, tech often shines through the holidays as consumers splurge on gadgets.

But with inflation taking a bite out of the household budget, we’ll see how many new iPhone, Pixel, Xbox, and Quest VR titles are coming to these smiley Amazon boxes this December.

Monday: UK and Eurozone flash PMI; Earnings from Hyundai, Philips (PHG) and Discover (DFS)

Tuesday: US consumer confidence; GM (GM), GE (GE), UPS (UPS), Coca-Cola (KO), UBS (UBS), HSBC (HSBC), SAP (SAP), JetBlue (JBLU), Alphabet, Microsoft, Visa (V) , Texas Instruments (TXN), Spotify (SPOT), Chipotle (CMG), and Mattel (MAT)

Wednesday: US new home sales; Boeing (BA), Bristol-Myers (BMY), Barclays (BCS), Heineken (HEINY), Deutsche Bank (DB), General Dynamics (GD), Kraft Heinz (KHC), Norfolk Southern (NSC), Hilton (HLT) , Harley-Davidson (HOG), Ford (F) and Meta

Thursday: US GDP; ECB interest rate decision; Chinese industrial production; US weekly jobless claims; US durable goods; Earnings of Comcast (CMCSA), Samsung (SSNLF), Unilever (UL), Credit Suisse (CS), Anheuser-Busch InBev (BUD), Caterpillar (CAT), Merck (MRK), Southwest (LUV), McDonald’s (MCD), Mastercard (MA), Amazon, Apple, Intel (INTC), T-Mobile (TMUS), and Capital One (COF)

Friday: US personal income and spending; US PCE inflation; Bank of Japan interest rate decision; GDP of France and Spain; Earnings of Exxon Mobil (XOM), Chevron (CVX), Volkswagen (VLKAF), AbbVie (ABBV), Charter Communications (CHTR), and Colgate-Palmolive (CL)