US economic growth in the fourth quarter of 2022 (October-December 2022) outperformed market expectations and slowed modestly as the Fed hopes to keep inflation under control without stifling growth.
But economists who have dug into the details of the statistics also see enough warning signs to suggest that there is a significant risk of recession later this year, especially as consumer spending slows.
Actually October-DecemberPreliminary GDP increased by 2.9% year-on-year from the previous quarter. July-September (third quarter) was up 3.2%. Separately released labor market data also showed resilience for the economy rather than a recessionary crisis.
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US Unemployment Insurance Claims Drop Again Unexpectedly, Nine-Month Low (1)
Top row: GDP, bottom row: Personal consumption (quarter-on-quarter annual rates, seasonally adjusted)
Source: Department of Economic Analysis
For the Fed, which has pushed for unusually aggressive rate hikes, the data suggests the economy still has a long way to go for a “soft landing.”
“The economy is slowing down, but the better-than-expected numbers should ease recession fears,” said Fawad Razakzada, market analyst at City Index. “This is a ‘Goldilocks’ scenario. It should be positive for risk assets.”
“clear stand”
Meanwhile, recession watchers have focused on some key numbers in the GDP statistics. Personal consumption, which accounts for the bulk of the US economy, increased by a lower-than-expected 2.1%, and real domestic final demand, which excludes net exports and inventories from GDP, increased by 0.8% in annualized only from the previous quarter. An increase of 1.5% in the previous quarter. Private sector final demand increased by 0.2%, the slowest growth since the April-June 2020 quarter.
The Fed’s main price indicator, the Personal Expenditure (PCE) price index, rose 3.2% on the year. This was the slowest growth since 2020, slowing from a 4.3% increase in the previous quarter. Core, which excludes food and energy, rose 3.9%. The slowest growth since the January-March quarter of 2021. It has risen by 4.7% in each of the previous two quarters. The December SNP will be published on the 27th.
“When you look at consumer behavior, the backbone of the US economy, the slowdown is clear,” Lindsey Piegza, chief economist at Stifle Nicholas & Co., told Bloomberg Television. “You simply cannot maintain positive growth unless consumers are happy and healthy,” he said, adding that “strong growth” as seen at the end of last year was even more so.
basic economic activity
“Services sector consumer spending drove strong growth in the fourth quarter, but the good news ends there, excluding volatile factors such as net exports and inventories and government spending,” said Eliza Winger, an economist at Bloomberg Economics. “Two basic economic indicators of activity point to significant slowdown.”
Economists expect the US economy to contract in the second and third quarters, with a 65% chance of a recession over the next year, according to a monthly Bloomberg survey.
The rise in feed rates is expected to hit households even harder this year. It usually takes months before rising borrowing costs start to affect lives.
Stiffle Chief Economist Lindsey Piegza Talks GDP Statistics
Source: Bloomberg
“policy error”
The tightening of monetary policy is already putting pressure on other parts of the economy. Capital investment slowed sharply in October-December. As the housing boom moved towards a reversal, investment in housing continued to stagnate.
Investors are pricing in a tightening cycle that is nearing its end, with a 25 basis point rate hike expected at next week’s Federal Open Market Committee (FOMC) meeting. Meanwhile, Fed officials have suggested keeping interest rates high through the rest of the year until inflation is beaten.
Still, a worsening snowball of slowing consumer spending in GDP data could force the Fed to reverse course by the end of the year, said Gregory Daco, chief economist at Ernst & Young.
“The Fed’s strong commitment to aggressive tightening and the delay for policy to affect economic activity increase the likelihood of policy mistakes,” he said. “There is still a good chance of two rate cuts in the second half of 2023,” he said.
Statistics details
Full year 2022 GDP will increase by 2.1%. The US economy grew 5.9% in 2021, its fastest growth since 1984, as demand rebounded from economic shutdowns related to the coronavirus pandemic.
Service expenditure in the October-December quarter grew at an annual rate of 2.6%, the slowest growth since the first quarter of last year. Expenditure on goods rose by 1.1%, the first positive since 2021.
Capital investment, which increased significantly by 6.2% in the July-September quarter, slowed sharply to an increase of 0.7% in the October-December quarter. Equipment investment fell by 3.7%, the biggest drop since the April-June 2020 quarter.
Residential investment fell by 26.7% annually, marking the seventh consecutive quarter of negative growth. Home sales last year saw their biggest drop since 2008 due to rising mortgage rates.
US used home sales continue to decline in December
The contribution of net exports to GDP was 0.56 points and inventories 1.46 points.
The revised GDP figures for the October-December quarter will be published at the end of February. The committee that dates business cycles at the National Bureau of Economic Research (NBER) uses GDP and Gross Domestic Income (GDI) averages, as well as a variety of other economic indicators, to identify recessions.
It has never been more difficult to determine a recession in the United States; strong and weak signals stack up
See the table for detailed statistics.
Original title:US Economy Shows Signs of Slowing After Growing 2.9% Last Quarter (抜粋）
news-rsf-original-reference paywall">Original title:US Economy Cools As Fed Wants, Still Risks Stall in 2023 (抜粋）
(Add statistical details and comments. In the article before the update, the 1st quarter in the 1st paragraph has been corrected to the 4th quarter)
