U.S. GDP grew 2.9% in the fourth quarter of 2022, beating Refinitiv economists' expectations of 2.6%, but a 0.3% decline from the 3.2% pace in the third quarter. A 2.1% increase in consumer spending, along with increases in private inventory investments, government spending, and a boost in non-residential fixed income can be highlighted as the main contributions to this fourth quarter GDP increase.
Despite this positive news, the U.S. economy is beginning to show signs of easing. Job growth is slowing, and the U.S. housing market entered a recession last year due to high mortgage rates. Causing investment in housing to fall 27% for the second straight quarter. Many economists at banks such as Bank of America, Goldman Sachs, and Deutsche Bank expect the economy will slip into a recession this year due to the Fed's interest rate hikes that will likely continue until their goal of 2% inflation is met. Joe Brusuelas, the chief economist at RSM, had this to say about the Fed rate hikes at the beginning of this calendar year, "Despite the resilient close to a difficult year in growth, we just do not see such a happy ending to a turbulent era of economic growth". Markets are expecting the Fed to approve a .25 basis point increase at the end of their meeting next week followed by another similar sized hike in March for a peak rate of 5%. Interest rates are closely linked to mortgage rates, which is why the the housing market is already in a recession. As the Fed rate hikes persist, it is likely the housing market will worsen, leading to a sizable decreasing in housing investment, which, as seen in the fourth quarter of 2022, can contribute to a further decrease in GDP growth.
https://www.foxbusiness.com/economy/us-gdp-grew-pace-fourth-quarter-us-economy-cools-slightly
3 comments:
It is pretty incredible that the third quarter showed more economic activity than the fourth quarter because it is pretty standard that the fourth quarter is the most productive quarter in the US. This could be due to consumer expectations of increased price, however, so they chose to purchase gifts for the holiday season before inflation further increased prices. This also could be an early sign of a recession, but may just be impacted by the slowing of the housing market.
Overall, great post!
I think it is important to look at articles like this in preparation for a large percentage of us moving forward with our search for jobs and beginning to prepare for life after graduation. I know I am not alone in that feeling given the cost of groceries and the housing market entering a recession. I went into a store the other day and eggs were being sold for over $5. Hopefully, this downturn can start to ease off and look up as we head towards May!
I think that it is smart for the Fed to continue with their interest rate hikes as a way to counter the high inflation we are currently experiencing. Various economic indicators are showing signs of slowing, except for the labor market which is still running rampant. It will be interesting to see how the Fed will respond as they continue with their attempt at a "soft landing".
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