Despite the pressure of rising interest rates and widespread concerns about an impending recession, the U.S. economy grew at a 2.9% annual rate from October through December, finishing 2022 with momentum.
According to the estimate released by the Commerce Department on Thursday, the country’s gross domestic product, which is the most comprehensive indicator of economic production, slowed down in the third quarter from the 3.2% annual growth rate it had registered from July through September. The majority of economists predict that the economy will continue to slow down in the upcoming quarter and enter at least a moderate recession by midyear.
Consumer spending remained strong last quarter, and firms replenished their supply chains. Spending by the federal government also increased GDP.
However, as a result of rising mortgage rates, which are undermining the residential real estate market, investment in housing fell for a second consecutive quarter at a 27% annual pace.
After increasing by 5.9% in 2021, the GDP increased by 2.1% overall in 2022.
The Federal Reserve’s aggressive succession of rate rises is meant to result in the economy’s anticipated downturn in the coming months. The Fed’s rate increases are intended to slow growth, restrain spending, and terminate the biggest inflationary wave in four decades. The Fed increased its target rate seven times in the previous year. It is anticipated to do so once more the following week, albeit by a lower margin.
It has come as a great shock how resilient the American labor market has been. According to federal data dating back to 1940, employers added 4.5 million employment last year, which was second only to the 6.7 million jobs added in 2021. And the 3.5% unemployment rate in the previous month matched a 53-year low.
Regarding Thursday’s GDP report, President Joe Biden said, “The news couldn’t have been much better.” “The appropriate direction is being taken by us. We must now safeguard those advantages.
However, it is unlikely that the good times for American workers will persist. Many individuals will cut down on their spending, and firms will probably hire fewer people as higher rates make borrowing and spending more expensive across the economy.
In a research paper, High-Frequency Economics’ principal U.S. economist Rubeela Farooqi stated that “recent statistics show that the pace of expansion could drop considerably in (the current quarter) as the impacts of restrictive monetary policy take root.” A desired slowdown in the economy will be good news, according to the Fed.
