The Outlook For The US Economy | US GDP Ahead

Internationally, governments face a difficult challenge: supporting their citizens at a time when prices are rising dramatically, especially for necessities such as food and fuel, which have been deeply affected by the war in Ukraine.

The Outlook

The outlook for the global economy heading into 2023 has worsened, according to multiple recent analyses, as the ongoing war in Ukraine continues to hamper trade, especially in Europe, and as markets await a more complete reopening of the Chinese economy after months of destructive COVID-19 lockdowns.

In the United States, signs of a tightening labor market and a slowdown in economic activity fueled fears of a recession. Globally, inflation picked up and business activity, particularly in the euro area and the UK, continued to decline.

In June, inflation rose to a 40-year high of 9.1% and remained at 7.7% in October, well above the Fed's target of 2% a year.

Fed Chairman Jerome Powell and his associates responded by raising interest rates from near zero in March to a range of 3.75% to 4%, with signaling indicators likely to exceed 5% for the first time since 2007.

2.6% in Q3

Gross domestic product in the US in the third quarter of 2022 increased by 2.6 percent. quarter-on-quarter (annualized), according to preliminary data from the Department of Commerce. This reading is higher than market expectations, as an increase of 2.4% was expected. This result was presented at the end of October (27.10.22) and this gave the Federal Reserve room to raise interest rates further.

Forecast

Expectations for the next reading are even more positive. GDP is expected to reach 2.7%.

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Source: investing.com

How it is calcuated?

The US uses a different way than European countries to compare GDP. They annualize their data, i.e. they convert short-term data as if they were to apply to the whole year, e.g. the monthly value is multiplied 12 times, and the quarterly value 4 times. For example, if GDP growth in a given quarter was 1%. compared to the previous quarter, the annualized growth rate was - to put it simply - slightly more than 4%. This means that we cannot directly compare data on GDP dynamics in the US to that recorded in European countries that publish data on economic growth dynamics without annualization.

Recession?

There is currently no recession in the US as it was not declared by the NBER, although the country entered a technical recession in the second quarter of 2022 with a second consistent quarter of negative GDP growth.

However, there are several factors pointing to a growing likelihood of a recession in the coming months.

Painful inflation can often persist without pushing the economy into recession. On the other hand, the actions of the US Federal Reserve (Fed), which sticks to a 2% price increase target, are increasingly likely to push the US into recession.

Fed economists said it was a virtual coin toss as to whether the economy would grow or plunge into recession in 2023. Central bank staff cited rising pressure on consumer spending, trouble abroad and higher borrowing costs as short-term headwinds.

Among the forecasts of a recession in the United States, there seems to be a growing consensus on its occurrence. However, there are some discrepancies as to how deep and how long it will be.

Source: investing.com