Home Business Strong U.S. economic growth expected in fourth quarter, outlook darkening

Strong U.S. economic growth expected in fourth quarter, outlook darkening

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  • Q4 GDP forecast up 2.6%
  • Private consumption is firm.Other sectors to contribute
  • Weekly jobless claims expected to rise modestly

WASHINGTON (Reuters) – The U.S. economy likely maintained its strong pace of growth in the fourth quarter as consumers pushed up spending on goods, but that momentum appeared to have slowed significantly towards the end of the year. Demand is waning due to rising interest rates.

The Commerce Department’s fourth-quarter gross domestic product (GDP) report, released Thursday, showed solid growth ahead of the belated effects of the Fed’s fastest monetary policy tightening cycle since the 1980s. It is possible to record the last quarter. Most economists expect this year to be milder than previous recessions.

Retail sales have weakened sharply over the past two months, and manufacturing appears to have joined the depressed housing market. The labor market remains strong, but business sentiment continues to deteriorate, which could ultimately affect employment.

“This could be a really positive and strong quarterly result for a while,” said Sam Bullard, senior economist at Wells Fargo Securities in Charlotte, N.C. “Markets and most people will be watching this number. More recent data suggests that economic momentum continues to slow.”

GDP growth may have increased at an annualized rate of 2.6% in the last quarter after accelerating at a pace of 3.2% in the third quarter, according to a Reuters poll of economists. Estimates ranged from 1.1% to 3.7% pace.

Strong growth in the second half of the year should offset a contraction of 1.1% in the first half of the year.

Full-year growth is expected to slow to around 2.1% from 5.9% in 2021. The Fed raised its policy rate by 425 basis points last year, taking it from near zero to a range of 4.25% to 4.50%. Since late 2007.

Consumer spending, which accounts for more than two-thirds of US economic activity, is expected to grow at a faster pace than the 2.3% recorded in the third quarter. This largely reflected a surge in spending on goods earlier in the quarter.

Spending is underpinned by labor market resilience and excess savings accumulated during the COVID-19 pandemic. However, demand for long-lasting industrial goods, mostly purchased on credit, is sluggish and some households, especially low-income households, are depleting their savings.

Economic growth may also have been boosted by corporate spending on equipment, intellectual property, and non-residential structures. Business spending lost some of its luster as the fourth quarter ended, however, as demand for commodities declined.

Despite clear signs of a weak handover to 2023, some economists warn the economy will avoid a full recession but suffer a rolling down in which the sector will decline in turns rather than all at once. I am optimistic.

rolling recession

They argue that technological advances and U.S. central bank transparency have allowed monetary policy to work with shorter lags than before, thus encouraging financial markets and the real economy to act in anticipation of rate hikes. I claim to have.

“GDP will continue to be positive,” said Song Wong Song, a professor of finance and economics at Loyola Marymount University in Los Angeles. “The reason is that sectors are falling in sequence, not at the same time. A rolling recession started with housing and we are now seeing the next phase related to consumption.”

In fact, factory output has fallen sharply for the second month in a row due to weak demand for the goods. Job cuts in the tech industry were also seen as signs of lower capital spending by businesses.

Housing investment has likely fallen for a seventh straight quarter, the longest decline since the bursting of the housing bubble that triggered the Great Recession, but there are signs that the housing market may be stabilizing. Mortgage rates are trending lower as the Fed slows its pace of rate hikes.

Inventory build-up was seen adding to GDP last quarter, but weaker demand is likely to force firms to focus on destocking warehouses rather than placing new orders, which is likely to continue in the coming quarters. quarterly growth.

Trade, which accounted for the majority of GDP growth in the third quarter, was seen as making a small contribution or subtracting from GDP growth. Strong growth is expected from government spending.

The labor market has shown remarkable resilience so far, but economists say the worsening business climate will force companies to delay hiring and lay off workers.

Companies outside the tech industry and interest rate sensitive sectors like housing and finance are hoarding workers after struggling to find them during the pandemic.

A separate report from the Department of Labor on Thursday showed state unemployment benefit initial claims for the week ending Jan. 21 fell to 205,000, seasonally adjusted from 190,000 the previous week, according to a survey of economists conducted by Reuters. It is highly probable that it has been shown that the

Kevin Cummins, chief economist at NatWest Markets in Stamford, Conn., said, “Initial unemployment claims have fallen since the recent slump, eventually coinciding with falling employment numbers and rising unemployment rates. I expect it to start recovering again.” “In turn, we expect spending to slow as consumers are reluctant to cut their savings in the face of a deteriorating labor market.”

Reported by Lucia Mutikani.Edited by Andrea Ricci

Our criteria: Thomson Reuters Trust Principles.

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