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WASHINGTON: The US economic system maintained its resilience from October by way of December regardless of rising rates of interest, rising at a 2.6% annual tempo, the federal government stated Thursday in a slight downgrade from its earlier estimate. But client spending, which drives many of the economic system’s growth, was revised sharply down.
The authorities had beforehand estimated that the economic system expanded at a 2.7% annual rate last quarter.
The rise within the gross home product — the economic system’s complete output of products and providers — for the October-December quarter was down from the three.2% growth rate from July by way of September. For all of 2022, the US economic system expanded 2.1%, down considerably from a sturdy 5.9% in 2021.
The report instructed that the economic system was shedding momentum on the finish of 2022.
Consumer spending rose at a 1% annual rate last quarter, downgraded from a 1.4% improve within the authorities’s earlier estimate. It was the weakest quarterly acquire in client spending since Covid-19 slammed the economic system within the spring of 2020. Spending on bodily items, like home equipment and furnishings, which had initially surged because the economic system rebounded from the pandemic recession, fell for a fourth straight quarter.
More than half of last quarter’s growth got here from companies restocking their inventories, not a sign of underlying economic power.
Most economists say they assume growth is slowing sharply within the present January-March quarter, partially as a result of the Federal Reserve has steadily raised rates of interest in its drive to curb inflation.
The ensuing surge in borrowing prices has walloped the housing trade and made it dearer for shoppers and companies to spend and spend money on main purchases. As a consequence, the economic system is broadly anticipated to slide right into a recession later this yr.
The central financial institution has raised its benchmark curiosity rate 9 occasions over the previous yr. The Fed’s policymakers are betting that they’ll stick a so-known as comfortable touchdown — slowing growth simply sufficient to tame inflation with out tipping the world’s largest economic system into recession.
Yet as larger mortgage prices unfold by way of the economic system, analysts are usually skeptical that the United States can keep away from a downturn. The important level of debate is whether or not a recession will show gentle, with solely minor injury to hiring and growth, or extreme, with waves of layoffs.
The monetary situations that led to the collapse of Silicon Valley Bank on March 10 and Signature Bank two days later — the second- and third-largest financial institution failures in U.S. historical past — are additionally anticipated to sluggish the economic system. Banks are doubtless to impose stricter situations on loans, which assist gas economic growth, to preserve money to meet withdrawals from jittery depositors.
“The economy ended 2022 with marginally less momentum,” Oren Klachkin and Ryan Sweet of Oxford Economics wrote in a research note. ”Looking forward, the economic system will face the complete brunt of tighter credit score situations and Fed coverage this yr, and inflation is ready to keep above its historic development.”
They added: “We count on a recession to hit within the second half of 2023.”
In the meantime, the job market stays strong and has exerted upward stress on wages, which feed into inflation. The tempo of hiring remains to be wholesome, and the unemployment rate is close to a half-century low. The confidence and spending of shoppers stay comparatively stable.
Thursday’s report from the Commerce Department was its third and closing estimate of GDP for the fourth quarter of 2022. On April 27, the division will situation its preliminary estimate of growth within the present first quarter. Forecasters surveyed by the info agency FactSet have estimated that growth within the January-March quarter is decelerating to a 1.4% annual rate.
The authorities had beforehand estimated that the economic system expanded at a 2.7% annual rate last quarter.
The rise within the gross home product — the economic system’s complete output of products and providers — for the October-December quarter was down from the three.2% growth rate from July by way of September. For all of 2022, the US economic system expanded 2.1%, down considerably from a sturdy 5.9% in 2021.
The report instructed that the economic system was shedding momentum on the finish of 2022.
Consumer spending rose at a 1% annual rate last quarter, downgraded from a 1.4% improve within the authorities’s earlier estimate. It was the weakest quarterly acquire in client spending since Covid-19 slammed the economic system within the spring of 2020. Spending on bodily items, like home equipment and furnishings, which had initially surged because the economic system rebounded from the pandemic recession, fell for a fourth straight quarter.
More than half of last quarter’s growth got here from companies restocking their inventories, not a sign of underlying economic power.
Most economists say they assume growth is slowing sharply within the present January-March quarter, partially as a result of the Federal Reserve has steadily raised rates of interest in its drive to curb inflation.
The ensuing surge in borrowing prices has walloped the housing trade and made it dearer for shoppers and companies to spend and spend money on main purchases. As a consequence, the economic system is broadly anticipated to slide right into a recession later this yr.
The central financial institution has raised its benchmark curiosity rate 9 occasions over the previous yr. The Fed’s policymakers are betting that they’ll stick a so-known as comfortable touchdown — slowing growth simply sufficient to tame inflation with out tipping the world’s largest economic system into recession.
Yet as larger mortgage prices unfold by way of the economic system, analysts are usually skeptical that the United States can keep away from a downturn. The important level of debate is whether or not a recession will show gentle, with solely minor injury to hiring and growth, or extreme, with waves of layoffs.
The monetary situations that led to the collapse of Silicon Valley Bank on March 10 and Signature Bank two days later — the second- and third-largest financial institution failures in U.S. historical past — are additionally anticipated to sluggish the economic system. Banks are doubtless to impose stricter situations on loans, which assist gas economic growth, to preserve money to meet withdrawals from jittery depositors.
“The economy ended 2022 with marginally less momentum,” Oren Klachkin and Ryan Sweet of Oxford Economics wrote in a research note. ”Looking forward, the economic system will face the complete brunt of tighter credit score situations and Fed coverage this yr, and inflation is ready to keep above its historic development.”
They added: “We count on a recession to hit within the second half of 2023.”
In the meantime, the job market stays strong and has exerted upward stress on wages, which feed into inflation. The tempo of hiring remains to be wholesome, and the unemployment rate is close to a half-century low. The confidence and spending of shoppers stay comparatively stable.
Thursday’s report from the Commerce Department was its third and closing estimate of GDP for the fourth quarter of 2022. On April 27, the division will situation its preliminary estimate of growth within the present first quarter. Forecasters surveyed by the info agency FactSet have estimated that growth within the January-March quarter is decelerating to a 1.4% annual rate.
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