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Washington, March 31 (BNA) The US economy maintained resilience from October through December despite higher interest rates, growing at an annual pace of 2.6%, the government announced Thursday, down slightly from its previous estimate. But consumer spending, which drives most of the economy’s growth, has fallen sharply.
The Associated Press (AP) reported that the government had previously estimated that the economy grew at an annual rate of 2.7% in the most recent quarter.
The rise in GDP – the economy’s total output of goods and services – in the first quarter from October to December was down from the 3.2% growth rate from July to September. For the full year of 2022, the US economy expanded by 2.1%, down significantly from the strong 5.9% in 2021.
The report indicated that the economy was losing momentum at the end of 2022.
Consumer spending rose at a 1% annual rate in the most recent quarter, down from a 1.4% increase in the government’s previous estimate. It was the weakest quarterly gain in consumer spending since the COVID-19 virus hit the economy in the spring of 2020. Spending on physical goods, such as appliances and furniture, which initially rose as the economy rebounded from a pandemic recession, fell for the fourth consecutive quarter.
More than half of the growth in the past quarter caI’m one of those companies that restock their inventory, and it’s not an indicator of underlying economic strength.
Most economists say they believe growth slows sharply in the current January-March quarter, in part because the Federal Reserve has been steadily raising interest rates in its effort to curb inflation.
The resulting increase in borrowing costs has crippled the housing industry and made it more expensive for consumers and businesses to spend and invest in major purchases. As a result, the economy is widely expected to slip into recession later this year.
The central bank raised the benchmark interest rate nine times over the past year. Fed policymakers are betting they can stick to a so-called soft landing — slowing growth enough to tame inflation without tipping the world’s largest economy into recession.
But with higher borrowing costs pervading the economy, analysts are generally skeptical that the United States can avoid a downturn. The main point of debate is whether the recession will be mild, with only minor damage to employment and growth, or severe, with waves of layoffs.
The financial conditions that led to the collapse of Silicon Valley Bank on March 10 and Signature Bank two days later – the second and third largest bank failures in US history – are also expected to slow the economy. Banks are likely to impose tougher conditions on loans, helping to support economic growth, to conserve liquidity to counter withdrawals from jittery depositors.
“The economy ended 2022 with marginally less momentum,” Oren Klashkin and Ryan Sweet of Oxford Economics wrote in a research note. “Looking ahead, the economy will face the full brunt of tighter credit conditions and Fed policy this year, and inflation is set to remain above trend. historical.”
They added: “We expect a recession in the second half of 2023.”
Meanwhile, the labor market remains strong and has put upward pressure on wages, fueling inflation. The pace of hiring remains good, and the unemployment rate is near its lowest level in half a century. Consumer confidence and spending remain relatively solid.
Thursday’s report from the Commerce Department was its third and final GDP estimate for the fourth quarter of 2022. On April 27, the department will release its preliminary estimate for growth in the current first quarter. Forecasters surveyed by data firm FactSet estimated growth in the January-March quarter slowing to a 1.4% annual rate.
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