The US economy is still on the narrow path that allows it to avoid a recession despite the Federal Reserve’s most aggressive rate hikes since the early 1980s: gross domestic product grew 0.7% quarterly, annualized rate of 2.9% in the fourth quarter of the year, according to data released this Thursday by the Commerce Department. That’s a slight slowdown from the previous quarter’s annualized pace of 3.2%.
The figure is slightly higher than analysts’ forecasts. For the full year, gross domestic product (GDP) grew 2.1%, compared to a frenetic 5.9% in 2021, amid the recovery from the recession that caused the 2020 pandemic. The number for 2022 is strong growth in the year of the Ukraine war, the highest inflation in 40 years and monetary tightening.
In the fourth quarter, Thanksgiving and Christmas, when consumption accelerates due to travel and shopping, consumers faced price increases and increased spending. The pandemic has left additional savings in its wake, and this reserve, along with strong job creation, is fueling the engine of the US economy. Added to this is an increase in public spending, especially at the federal level.
“Real GDP growth reflected increases in private inventory investment, consumer spending, federal government spending, state and local government spending, and non-residential fixed investment, partially offset by declines in residential fixed investment and exports. Imports, which remain in the calculation of GDP, fell,” explains the Department of Commerce’s Bureau of Economic Analysis.
With data released today (a first preview subject to review), the United States ended 2022 with remarkable growth; high inflation (6.5% yoy), but the lowest since 2020; and an unemployment rate of 3.5%, the minimum for the last half century. Rate hikes have slowed some sectors (construction and homebuying) but have not yet caused the feared recession.
This is good news for the President of the United States, Joe Biden, after the economy has been his biggest headache for the past year, although he didn’t get it due to the scandal surrounding the secret papers he kept in a private office and with him Enjoy your home in Wilmington, Delaware to the fullest.
Many economists believe that the threat of a recession still exists and that the United States is likely to experience a mild recession later this year, but the soft landing option (controlling inflation without the economy contracting) is still a possibility. United States GDP has fallen for two straight quarters in the first half of 2022, but due to specific factors and amid strong job creation, economists avoid labeling this setback as a recession.
“Consumer spending remains strong both domestically and globally,” Callie Cox, US analyst at eToro, said via email. “It’s tough for a recession when demand is this resilient, and that’s good news for a market worried about the future of the economy,” he added.
The Federal Reserve has already slowed the pace of rate hikes, but economists and investors expect it to hike again at next week’s meeting. They are expecting a 0.25 point increase, after 0.5 point in December, which placed the official bid price in the 4.25% to 4.5% range. Central Bank Governor Jerome Powell has insisted that more important than pace is the level at which interest rates eventually reach and how long they stay high. Powell won’t back down until he sees inflation is under control.
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