Despite the pressure with rising interest rates and increasing concerns about an impending recession. United States economy grew at a 2.9% annualised from Oct to Dec, finishing 2022 with momentum.
According to the estimate released by the Commerce Department on Thursday, the country’s gross domestic product.
Which is the most comprehensive indicator of economic production, slowed down in the third quarter from 3.2% annual rate of growth this had registered from July to September. The majority of economists predict. That the economy will continue to slow down in the upcoming quarter and enter at least a moderate recession by midyear.
Consumer spending remained strong last quarter, and firms replenished their supply chains. Spending by the federal govt also increased GDP. However, as a result of rising mortgage rates. Which are undermining the residential real estate market, investment in housing fell for a second consecutive quarter at 27% annualized pace.
After increasing 5.9% that in 2021, the GDP increased 2.1% overall in 2022.
The Federal Reserve’s rapid cycle of interest rate hikes is meant to result in the economy’s forecasted slowdown in the coming months. The Fed’s rate increases are intend to slow growth, restrain spending, and terminate the biggest inflationary wave in four decades. The Fed increased its target rate 7 times in the previous year. It is anticipate to do so once more the following week, however by a lower margin.
Rolling Recession
It has come as a great shock how resilient the US labour market has been. In official data going back in 1940, the number of jobs added by businesses last year was 4.5 million. Which was second just to the 6.7 million generated in 2021. And the 3.5% unemployment rate in the previous month equaled a 53-year downtrend.
However, it is unlikely that the good times for American workers will persist. Many individuals will cut down on their spending. And firms will probably hire fewer people as higher interest rates make spending and borrowing more expensive across the economy.
In a research paper, High Frequency Economics’ senior US economist Rubeela Farooqi stated that “recent statistics show that the expansion rate could slow considerably in “current quarter”. As the impacts of restrictive monetary policies take root.” A desired slowing of the economy would be good news, according to the Federal Reserves.
Roughly 70% of the economy is driven by consumer spending. Which increased at a solid 2.1% annualized rate between Oct to Dec, slightly less than the previous quarter’s 2.3% growth.
More recent data, such as a 1.1% decline of retail sales previous month, show that consumer spending has started to slow.
According to Andrew Hunter, A senior US economist of Capital Economics, “it signals higher interest rates were beginning to take a bigger toll that sets the way for poorer growth in the first quarter this year.”
Bank of America economists predict that growth will slow to a 1.5% annualized rate in the Jan to Mar quarter. And then decline for the remaining of the year, declining by 0.5% with in second quarter; 2% in the third, and 1.5% in fourth.
US Economy Growth
The Federal Reserve has been acting in response to inflation that has been progressively declining but has maintained persistently high. Inflation over the previous year raged at a rate of 9.1% throughout June, the highest rate from more than forty years. It has now dropped, to 6.5% in Dec. But it is still far higher than the Fed’s yearly target of 2%.
Sal Guatieri, A senior economist of BMO Capital Economics, said: ‘The US economy is not tumbling off a rock. But it is loosing strength & fears contracting beginning this year. This should restrict future rate hikes by the Fed with just two modest increases.
Politics also pose a risk to the economy this year: whether the Biden administration opposes House Republicans’ demands for significant spending cutbacks, they may refuse to increase the debt limit. If the borrowing limit isn’t increased. The federal government won’t be able to cover all of its debts, which could ruin its reputation.
According to Moody’s Analytics, the ensuing instability might lead to the loss of close to 6 million US jobs in a severe recession like the one brought on by the 2007–2009 financial meltdown.