WASHINGTON, DC: The U.S. economic system grew extra slowly in 2022 however carried out better-than-expected within the closing months of final yr, the Commerce Division mentioned Thursday amid recession fears.
Financial exercise has softened because the US Federal Reserve raised benchmark rates of interest seven occasions over the previous yr in hopes of cooling demand and containing prices amid rising inflation.
The actual property sector has tumbled, adopted by declines in manufacturing and retail.
Towards this background, the world’s largest economic system grew by 2.1 % for the entire of 2022 in comparison with 2021, in keeping with information from the Division of Commerce.
“Actual GDP development in 2022 primarily mirrored will increase in shopper spending, exports and sure types of funding,” the division mentioned in a press release.
For the October-December interval, US gross home product (GDP) beat expectations, rising at an annual charge of two.9 %.
That was barely beneath the three.2 % bounce seen within the third quarter of final yr and marks a second consecutive quarter of development after two rounds of contraction.
President Joe Biden hailed the “superb information from the American economic system” on Thursday, highlighting better-than-expected fourth-quarter development and the resilience of the job market.
“We’re shifting in the correct path. Now we should defend these positive factors that our insurance policies have generated,” he mentioned in a speech in Virginia.
Whereas the economic system grew strongly within the fourth quarter, many of the rebound got here early and is unlikely to be repeated in early 2023, mentioned Oxford Economics’ Oren Klachkin.
Family spending and enterprise funding remained optimistic however slowed within the closing months of final yr, added Rubeela Farooqi of Excessive Frequency Economics.
Inventories and web buying and selling might have supported development, however analysts warn that this can’t be counted on within the new yr.
In the meantime, funding within the housing sector continued to fall, on the longest tempo since the true property disaster, Klachkin mentioned.
The speed-sensitive housing sector has faltered because the Federal Reserve (Fed) hiked charges, mortgage charges stayed excessive and weighed on affordability.
“Trying forward, the most recent information means that the tempo of enlargement may gradual sharply within the first quarter as the consequences of tightening financial coverage take maintain,” Farooqi mentioned.
A separate Commerce Division report launched on Thursday confirmed orders for large-format US industrial items in December had been stronger than anticipated, though information pointed to a weak finish to 2022 for enterprise funding and gear spending, she added.
A slowdown could be welcome information for the Fed and will open doorways for a slower tempo of charge hikes forward.
weaken the engine of development
Whereas better-than-expected shopper spending has supported development over the previous yr, there are indicators that this key engine is weakening as households pull again their pandemic-era financial savings.
That would portend extra subdued spending, economists say.
“Client spending — the economic system’s key development driver — is anticipated to weaken as earnings development slows and households can now not depend on extra financial savings to maintain their desired tempo of spending,” Klachkin added.
“The economic system is now near full employment, so job development is sure to gradual,” he mentioned.
In response to Oxford Economics, the US may enter a recession within the second quarter as shoppers restrain spending and companies change into extra reluctant to rent and make investments.
Nevertheless, others consider that the nation can nonetheless keep away from a recession if the labor market stays sturdy and monetary steadiness sheets are wholesome.
Even when households are piling into inflation due to inflation, “they’re coming from a really excessive level,” and in keeping with Moody’s Analytics economist Matt Colyar, that ought to mitigate or forestall a protracted downturn.
Mass layoffs additionally appear exhausting to think about in the meanwhile as labor provide points are holding again corporations from hiring.
“It is plausible that the softness that we’re seeing stays comparatively restricted,” Colyar mentioned.