By PAUL WISEMAN
WASHINGTON (AP) — The U.S. economic system expanded at a 2.9% annual tempo from October by means of December, ending 2022 with momentum regardless of the stress of excessive rates of interest and widespread fears of a looming recession.
Thursday’s estimate from the Commerce Department confirmed that the nation’s gross home product — the broadest gauge of financial output — decelerated final quarter from the three.2% annual development price it had posted from July by means of September. Most economists suppose the economic system will gradual additional within the present quarter and slide into a minimum of a light recession by midyear.
The economic system received a lift final quarter from resilient client spending and the restocking of provides by companies. Federal authorities spending additionally helped raise GDP. But with larger mortgage charges undercutting residential actual property, funding in housing plummeted at a 27% annual price for a second straight quarter.
For all of 2022, GDP expanded 2.1% after rising 5.9% in 2021.
The economic system’s anticipated slowdown within the months forward is an supposed consequence of the Federal Reserve’s aggressive collection of price will increase. The Fed’s hikes are supposed to cut back development, cool spending and crush the worst inflation bout in 4 a long time. Last 12 months, the Fed raised its benchmark price seven instances. It is ready to take action once more subsequent week, although this time by a smaller quantity.
The resilience of the U.S. job market has been a significant shock. Last 12 months, employers added 4.5 million jobs, second solely to the 6.7 million that had been added in 2021 in authorities information going again to 1940. And final month’s unemployment price, 3.5%, matched a 53-year low.
But the great instances for America’s staff aren’t more likely to final. As larger charges make borrowing and spending more and more costly throughout the economic system, many customers will spend much less and employers will doubtless rent much less.
“Recent data suggest that the pace of expansion could slow sharply in (the current quarter) as the effects of restrictive monetary policy take hold,” Rubeela Farooqi, chief U.S. economist at High Frequency Economics, wrote in a analysis report. “From the Fed’s perspective, a desired slowdown in the economy will be welcome news.”
Consumer spending, which fuels about 70% of the complete economic system, rose at a sturdy 2.1% annual price from October by means of December, down barely from 2.3% within the earlier quarter.
More latest numbers, together with a 1.1% drop in retail gross sales final month, point out that buyers have begun to drag again.
“That suggests larger charges had been beginning to take a much bigger toll and units the stage for weaker development within the first quarter of this 12 months,’ mentioned Andrew Hunter, senior U.S. economist at Capital Economics.
Economists at Bank of America anticipate development to gradual to a 1.5% annual price within the January-March quarter after which to contract for the remainder of the 12 months — by a 0.5% price within the second quarter, 2% within the third and 1.5% within the fourth.
The Fed has been responding to an inflation price that continues to be stubbornly excessive despite the fact that it has been step by step easing. Year-over-year inflation was raging at a 9.1% price in June, the best degree in additional than 40 years. It has since cooled — to six.5% in December — however remains to be far above the Fed’s 2% annual goal.
“The U.S. economy isn’t falling off a cliff, but it is losing stamina and risks contracting early this year,” mentioned Sal Guatieri, senior economist at BMO Capital Economics. “That should limit the Fed to just two more small rate increases in coming months.”
One extra menace to the economic system this 12 months is rooted in politics: House Republicans may refuse to lift the federal debt restrict if the Biden administration rejects their demand for broad spending cuts. A failure to lift the borrowing cap would forestall the federal authorities from having the ability to pay all its obligations and will shatter its credit score.
Moody’s Analytics estimates that the ensuing upheaval may wipe out almost 6 million American jobs in a recession just like the devastating one which was triggered by the 2007-2009 monetary disaster.
At least the economic system is probably going starting the 12 months on firmer footing than it did at the beginning of 2022. Last 12 months, the economic system shrank at an annual tempo of 1.6% from January by means of March and by an extra 0.6% from April by means of June. Those two consecutive quarters of financial contraction raised fears {that a} recession might need begun.
On company earnings requires the April-June quarter of 2022, almost half of firms within the S&P 500 had cited a “recession” — the best such proportion since 2010 — based on the information supplier FactSet. Forecasters at Bank of America and Nomura had predicted {that a} recession would hit by the October-December quarter.
But the economic system regained power over the summer season, propelled by resilient client spending and better exports.
____
AP Writers Christopher Rugaber and Josh Boak contributed to this report.
Source: www.bostonherald.com”