The US Economy Expects Neither Decline Nor Growth Of GDP
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This week attention was focused on the US inflation report. In the coming week, the markets and the Americans expect the publication of gross domestic production data and thus whether fears of recession are high.
Previous data
The US economy ended 2022 in solid form, although there are still questions as to whether growth will turn negative in the coming year.
Gross domestic product grew by 2.9% yoy in the fourth quarter, slightly better than expected. An increase in private investment in inventories, government spending, and investment in non-residential fixed assets helped raise the value of GDP.
The sharp decline in housing helped reduce GDP, while increases in government spending and private investment contributed to growth. The rate of growth was slightly slower than the 3.2% rate in the third quarter.
Consumption expenditure, which accounts for around 68% of GDP, increased by 2.1% over the period, down slightly from 2.3% in the previous period, but is still positive.
Forecast
Gross domestic product is expected to remain unchanged at 2.9%.
Fed
New government figures released on Tuesday show that above-average inflation continues to challenge the US economy.
Largely positive economic data from the US and hawkish stance of several FOMC representatives opened the possibility of further rate hikes by the Federal Reserve. The Federal Reserve is expected to continue raising interest rates. The difficulty the central bank faces is whether it is able to carry out a soft landing.
Economists said they still expect a recession after the new January inflation figures. The question is how severe the downturn could be.
Soft landing?
A recession is when an economy gets smaller, i.e. produces less stuff: fewer laptops, trucks, lattes and hairdressers. Normally when it happens you feel it, people get fired, businesses close down and it all starts with a super sale. But now nothing really goes according to plan.
Last year, as inflation spiked, the Federal Reserve took action to drive prices down by raising interest rates.
The increase in interest rates is intended to slow spending. Higher interest rates make it more expensive for people and businesses to borrow money, so they borrow less, spend less, and ultimately buy less.
When spending goes down, companies lower prices to encourage people to buy. And just like that, prices go down. Inflation problem solved!
The problem is that a slowdown in spending slows down the entire economy.
A promising sign that the US economy may hit a soft landing comes from the most important consumer. Consumer spending (or what we buy) accounts for nearly 70% of the entire US economy.
When consumers spend less, the entire economy slows down. And the latest figures show that consumers spent at a very fast pace in January.
Through the eyes of citizens
Despite high inflation, rising interest rates and consistent recession predictions from Wall Street, Americans have continued to spend at record rates over the past year.
A recent Morning Consult poll found that nearly half of adults - 46% - believe the US is already in recession.
Such a slowdown – traditionally defined as two consecutive quarters of falling economic growth – has not really happened yet.
However, economists say a recession may be imminent.
Source: investing.com
