US Economy Likely Slowed in Q4 01/26 06:18
The U.S. economy likely rolled out of 2022 with momentum, registering decent
growth in the face of painful inflation, high interest rates and rising concern
that a recession may be months away.
WASHINGTON (AP) -- The U.S. economy likely rolled out of 2022 with momentum,
registering decent growth in the face of painful inflation, high interest rates
and rising concern that a recession may be months away.
Economists have estimated that the gross domestic product -- the broadest
measure of economic output -- grew at a 2.3% annual pace from October through
December, according to a survey of forecasters by the data firm FactSet.
The Commerce Department will issue its first of three estimates of
fourth-quarter GDP growth at 8:30 a.m. Eastern time Thursday.
Despite a likely second straight quarter of expansion, the economy is widely
expected to slow and then slide into a recession sometime in the coming months
as increasingly high interest rates, engineered by the Federal Reserve, take a
toll. The Fed's rate hikes have inflated borrowing costs for consumers and
businesses, from mortgages to auto loans to corporate credit.
The housing market, which is especially vulnerable to higher loan rates, has
been badly bruised: Sales of existing homes have dropped for 11 straight
months. Investment in housing plunged at a 27% annual rate from July through
And consumer spending, which fuels roughly 70% of the entire economy, is
likely to soften in the months ahead, along with the still-robust job market.
The resilience of the labor market has been a major surprise. Last year,
employers added 4.5 million jobs, second only to the 6.7 million that were
added in 2021 in government records going back to 1940. And last month's
unemployment rate, 3.5%, matched a 53-year low.
But the good times for America's workers aren't likely to last. As higher
rates make borrowing and spending increasingly expensive across the economy,
many consumers will spend less and employers will likely hire less.
Last year, the Fed raised its benchmark rate seven times in unusually large
increments to try to curb the spike in consumer prices. Yet another Fed rate
hike, though a smaller one, is expected next week.
The central bank has been responding to an inflation rate that remains
stubbornly high even though it has been gradually easing. Year-over-year
inflation was raging at a 9.1% rate in June, the highest level in more than 40
years. It has since cooled -- to 6.5% in December -- but is still far above the
Fed's 2% annual target.
Another threat to the economy this year is rooted in politics: House
Republicans could refuse to raise the federal debt limit if the Biden
administration rejects their demand for broad spending cuts. A failure to raise
the borrowing cap would prevent the federal government from being able to pay
all its obligations and could shatter its credit.
Moody's Analytics estimates that the resulting upheaval could wipe out
nearly 6 million American jobs in a recession similar to the devastating one
that was triggered by the 2007-2009 financial crisis.
At least the economy is likely beginning the year on firmer footing than it
did at the start of 2022. Last year, the economy shrank at an annual pace of
1.6% from January through March and by a further 0.6% from April through June.
Those two consecutive quarters of economic contraction raised fears that a
recession might have begun.
But the economy regained strength over the summer, propelled by resilient
consumer spending and higher exports. It expanded at an unexpectedly strong
3.2% annual pace from July through September.