The U.S. economy is experiencing a slowdown in economic growth, which has raised concerns about the possibility of an impending recession. According to the final estimate of GDP for the fourth quarter of 2022 released by the Commerce Department, the economy grew at an annual pace of 2.6% from October to December, slightly lower than the previous estimate of 2.7%. This figure marks a significant slowdown from the 3.2% growth rate posted from July through September.
Consumer Spending Downgraded, Causing Concerns
The main driver of the economy, consumer spending, was also revised sharply down, with spending rising at a rate of only 1% in the final quarter of 2022. This represents the weakest quarterly gain since COVID19 hit the economy in early 2020. The report suggests that the economy is losing momentum because of declining consumption at the end of 2022.
Businesses Restocking Contributing to Growth
However, more than half of last quarter’s growth came from businesses restocking their inventories instead of underlying economic strength. This detail indicates that businesses are stocking up their inventories due to concerns over disruptions in supply chains rather than knowledgeable excess demand.
Federal Reserve Interest Rate Hikes Impacting GDP Growth
Experts suggest that growth is expected to slow sharply this quarter due in large part to interest rate hikes by the Federal Reserve aimed at curbing inflation. As interest rates rise, borrowing becomes more expensive for consumers and businesses, hurting investment and spending margins.
Higher Loan Costs Impacting Housing Industry
The rise in loan costs has hit hard not only on consumers but also on industries such as housing who have seen higher sales prices and less turnover impacting jobs and related businesses like home improvement and real estate sales.
Predictions and Expectations of Recession
Most experts including Oren Klachkin and Ryan Sweet from Oxford Economics predict that a mild recession is expected in the second half of 2023 as financial conditions worsen. Several factors are responsible for this including the impact of rate hikes, high inflation rates, and stricter lending conditions to conserve cash to meet withdrawals from jittery depositors.
Conclusion
In conclusion, the slower economic growth and lower GDP estimates for the U.S. in the fourth quarter of 2022 have raised concerns about a possible recession. Contrary to last year when businesses were riding high on an excess of consumer spending, this year’s economy is heading into a challenging start as industries and businesses brace for the expected downturn to come. It is uncertain how severe the recession would become, but economists are keeping a close eye on developing events that could indicate its severity.
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