The US financial system expanded at a healthy pace within the fourth quarter, although signs of slowing underlying demand mounted because the steepest interest-rate hikes in many years threaten progress this yr.
Gross home product elevated at a 2.9% annualised fee in closing three months of 2022 after a 3.2% acquire within the third quarter, the Commerce Department’s preliminary estimate confirmed Thursday. About half of the GDP improve mirrored stock progress, while authorities outlays matched the most important acquire since early 2021.
Personal consumption, the most important a part of the financial system, climbed at a below-forecast 2.1% pace.
The combined report means that the Federal Reserve nonetheless has a path to a tender touchdown with officers set to additional downshift their fee will increase subsequent week and debate when to pause. Their most well-liked worth gauge rose at the slowest pace in two years, while a separate report confirmed unemployment filings remained close to historic lows.
The information confirmed some signs of stress for American customers whose wages have did not sustain with inflation and continued to encourage them to attract down financial savings gathered from authorities pandemic-relief applications. The burden of elevated costs and better borrowing prices is mounting, pointing to a tenuous outlook for the financial system.
“When we look at what’s happening with the consumer, which is the backbone of the US economy, we are seeing a clear loss of momentum,” Lindsey Piegza, chief economist at Stifel Nicolaus & Co. in Chicago, mentioned on Bloomberg Television. “Without the consumer happy and healthy out in the marketplace, we simply cannot expect to maintain positive growth, let alone more robust growth similar” to the tip of final yr, she mentioned.
A key gauge of underlying demand that strips out the commerce and inventories elements — inflation-adjusted closing gross sales to home purchasers — rose an annualised 0.8% within the fourth quarter after a 1.5% acquire. Final gross sales to non-public home purchasers climbed simply 0.2%, the weakest because the second quarter of 2020.
What Bloomberg Economics Says…
“Consumer spending on services drove the economy to solid growth in the fourth quarter, but the good news ends there. Two measures of underlying activity that strip out volatile components — including trade, inventory swings, and government spending — showed considerably milder growth.”
— Eliza Winger, economist
The newest Bloomberg month-to-month survey exhibits economists see the financial system shrinking within the second and third quarters, placing 65% odds on a recession within the coming yr.
Stock-index futures and Treasury yields remained larger and the greenback was little modified after the GDP report and better-than-expected weekly jobless claims. Applications for unemployment insurance coverage dropped to 186 000 final week, the bottom since April.
Recent information present cracks are growing extra broadly. Retail and motorcar gross sales information confirmed households are beginning to retrench, the housing market continues to weaken and a few companies are reconsidering capital spending plans.
As the Fed continues to hike rates of interest to make sure inflation is extinguished, housing and manufacturing have deteriorated shortly while industries together with banking and know-how are finishing up mass layoffs.
The GDP report confirmed the non-public consumption expenditures worth index, a key inflation metric for the Fed, rose at an annualized 3.2% fee within the fourth quarter, the slowest since 2020 and down from a 4.3% pace within the prior three months.
The core index that excludes meals and power climbed at a 3.9% fee, the slowest because the first quarter of 2021 after 4.7% paces within the prior two quarters. Monthly information for December will likely be launched Friday.
The moderation in worth pressures is per forecasts that the Fed will additional reduce its tightening marketing campaign subsequent week, when it’s anticipated to lift charges by 25 foundation factors. Policymakers boosted the benchmark fee by 50 factors in December after 75 basis-point hikes at their earlier 4 conferences.
Last yr
The world’s largest financial system expanded 2.1% final yr. In 2021, when demand snapped again from pandemic-related shutdowns, the financial system grew 5.9% — the most effective efficiency since 1984.
The GDP information confirmed companies spending elevated at 2.6% annualised fee within the October-December interval, the slowest since final yr’s first quarter. Outlays on items rose at a 1.1% pace, the primary advance since 2021.
Business funding slowed sharply after a third-quarter surge. Spending on tools declined an annualised 3.7%, probably the most because the second quarter of 2020.
Outlays for buildings rose at a 0.4% pace. Another report Thursday confirmed bookings for non-defense capital items excluding plane, a proxy for enterprise funding, dropped 0.2% in December — probably the most in three months.
How Executives See It
- “The outlook for 2023 remains uncertain. In the US, central bank rate increases of started to have an impact on inflation, but they are also lowering the growth trajectory of the economy.” — David Solomon, CEO at Goldman Sachs Group Inc., January 17 earnings name.
- “The activity we’re seeing feels okay. But we are, like everybody else, a bit nervous about where things are going.” — Daniel Florness, CEO at Fastenal Co., January 19 earnings name.
- “If past behavior over the last six months, nine months is any indication, I think the consumer is relatively steady in the US, which gives us great confidence.” — Andre Schulten, chief monetary officer at Procter & Gamble Co, January 19 earnings name.
- “This is not going to be like a normal recession, that’s why you hear us and others talking about the manageability and the mildness that’s likely if we do have one.” — Jane Fraser, chief government officer at Citigroup Inc., January 13 earnings name.
Residential funding slumped at a 26.7% annual pace, marking the seventh-straight quarterly decline. Home gross sales fell final yr by probably the most since 2008 as mortgage charges skyrocketed.
Inventories contributed 1.46 proportion factors to GDP, while commerce added 0.56 proportion level. Separate information on Thursday confirmed the merchandise-trade hole widened final month to the most important on report because of the biggest-ever improve in imports. The figures aren’t adjusted for inflation.
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