The US economy is resisting interest rate hikes better than expected. The gross domestic product (GDP) of the world’s leading economy grew by 0.5% (ie at an annual rate of 2%) in the first quarter of the year, beating previous estimates which suggested quarterly growth of just 0.3%.
The Federal Reserve has long tried to cool the economy to control inflation. In just over a year, official interest rates have risen by 5 points. Central Bank Governor Jerome Powell is aiming for a soft landing to restore price stability without slipping into a recession. However, the landing is not soft at the moment, it just doesn’t land.
The economy continues to generate jobs at full speed, beating the most optimistic forecasts month after month. So far this year, an average of 314,000 jobs have been added per month and the unemployment rate remains at 3.7%, near its lowest level in half a century. GDP chains three consecutive quarters of growth and 0.5% in the first quarter of 2023 is very close to 0.6% in the last quarter of 2022.
Federal Reserve interest rate hikes have pushed up the cost of mortgages, auto and other durable goods loans, credit cards and business loans, but savings accumulated during the pandemic have helped partially offset this effect. Many economists are still waiting for the recession to stay away.
The President of the United States himself, Joe Biden, joked about it this Wednesday. “I’ve been hearing every month there’s going to be a recession next month,” he said. “I don’t think that’s the case,” he added. By adopting the “Bidenomics” label on his economic policies (which in reality are largely Powell’s), Biden is attempting to retain the medal for record job creation during his tenure after inflation has eased, but voters continue to view the policies negatively .
Although the loss of purchasing power continues to weigh on the minds of citizens, the truth is that the macro data comes with it. The upward revision of GDP reported this Thursday by the Department of Commerce’s Office of Economic Analysis is mainly due to strong consumption and higher exports than previously calculated.
It is the third estimate to be published. The first pointed to annualized quarterly rate growth of 1.1%, the second to 1.3%. At the time, the film seemed like that of an economy that was cooling down considerably as a result of the rise in interest rates, which was particularly noticeable in the residential real estate sector, i.e. in house construction.
Although this part of the economy continues to act as a ballast, the increase in GDP in the first quarter reflects an increase in consumer spending (at an annual rate of 4.2%), exports, public spending at various levels and non-residential fixed investment were partially offset by declines in private inventory investment, housing investment and higher imports.
The Federal Reserve, battling inflation that hit a four-decade high of 9.1% in June last year, has hiked interest rates 10 times since March 2022 from near zero to the current range of 5% to 5.25% , but has since slowed to 4%.
In the current April-June quarter, the economy is expected to slow down, but it is still growing. Economists polled by data firm FactSet estimated annual growth of 1% for the quarter, down from just 0.2% on a quarterly basis. So far, however, the economy has defied forecasts of a slowdown.
The same Thursday, it was announced that the number of jobless claims fell sharply last week after a rebound in previous weeks. The Labor Department reported Thursday that jobless claims fell by 26,000 to 239,000 in the week ended June 24. Economists expected the high number of applications to remain above 260,000, where they had leveled off over the past three weeks. Claims for unemployment benefits are considered representative of the number of layoffs in a given week.
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