Strong US economic growth is expected in the fourth quarter, the outlook darkens

  • GDP growth in the fourth quarter is expected at a rate of 2.6 percent
  • Strong consumer spending has been observed. Other departments to participate
  • Weekly jobless claims are expected to increase on average

WASHINGTON, Jan 26 (Reuters) – The U.S. economy likely maintained a strong pace of growth in the fourth quarter as consumer spending on goods picked up, but the pace appears to have slowed significantly by the end of the year as higher interest rates weighed on demand. has reduced

The Commerce Department’s preliminary fourth-quarter gross domestic product report on Thursday could mark the last quarter of strong growth before the lingering effects of the Federal Reserve’s fastest monetary policy cycle since the early 1980s. Most economists expect a recession in the second half of the year. year, though mild compared to previous recessions.

Retail sales have weakened sharply over the past two months, and manufacturing sectors appear to have joined the housing market in the downturn. While the labor market remains strong, business sentiment remains weak, which could ultimately hurt hiring.

“This looks to be a really positive and strong latest quarterly print that we’re going to see for a while,” said Sam Bullard, chief economist at Wells Fargo Securities in Charlotte, North Carolina. “Markets and most people will look at this number. More recent data shows that economic momentum is still slowing.”

Gross domestic product growth likely picked up at an annual rate of 2.6 percent last quarter after a 3.2 percent pace in the third quarter, according to a Reuters poll of economists. Estimates ranged from a rate of 1.1 percent to 3.7 percent.

Strong growth in the second half offset a 1.1 percent contraction in the first six months of the year.

Full-year growth is expected to be around 2.1%, down from the 5.9% recorded in 2021. The Federal Reserve last year raised its policy rate by 425 basis points from near zero to a range of 4.25%-4.50%, the highest ever. Is. Since late 2007

Consumer spending, which accounts for more than two-thirds of US economic activity, is expected to have grown at a faster pace than the 2.3 percent rate recorded in the third quarter. This mostly reflects the increase in commodity costs at the beginning of the quarter.

Spending has been supported by the resilience of the labor market as well as additional savings accumulated during the Covid-19 pandemic. But demand for durable manufactured goods, mostly bought on credit, has disappeared, and some households, especially lower-income ones, have reduced their savings.

Economic growth is also likely to be fueled by business spending on equipment, intellectual property, and non-residential structures. But as demand for goods increased, business spending also lost some of its luster as the fourth quarter ended.

Despite clear signs of a weak handover to 2023, some economists are cautiously optimistic that the economy will skip a full recession, but instead suffer a series of recessions, where sectors decline in turn rather than all at once.

rolling recession

They argue that monetary policy now operates with less lag than in the past because of advances in technology and the transparency of the U.S. central bank, which they say has led to the performance of financial markets and the real economy in anticipation of rate hikes.

“We will continue to have positive GDP numbers,” said Song Won-seon, a professor of finance and economics at Loyola Marymount University in Los Angeles. “The reason is that the sectors are declining in turn and not at the same time.

In fact, factory production has fallen sharply for two months in a row as demand for goods has fallen. Job cuts in the tech industry are also seen as lower capital spending by businesses.

While housing investment is likely to suffer its seventh straight quarter, the longest since the housing bubble collapsed and the Great Recession began, there are signs that the housing market is stabilizing. Mortgage rates have fallen as the Federal Reserve slows rate hikes.

Stockpiling was seen to add to GDP in the last quarter, but with demand slowing, businesses are likely to focus on reducing their inventory rather than placing new orders, which will slow growth in the third quarter. It will be next month.

Trade, which accounted for the bulk of GDP growth in the third quarter, either contributed little or detracted from GDP growth. Strong growth is expected from government spending.

While the labor market has shown considerable resilience so far, economists argue that deteriorating business conditions are forcing companies to slow down the pace of hiring and firing.

Companies outside the tech industry, as well as interest rate-sensitive sectors such as housing and finance, are hoarding workers after struggling to find labor during the pandemic.

A separate report from the Labor Department on Thursday was likely to show initial claims for state jobless benefits rose to a seasonally adjusted 205,000 for the week ended Jan. 21 from 190,000 the previous week, according to a Reuters poll of economists.

“We expect initial jobless claims to eventually pick up after the recent decline, in line with the final decline in wages and rising unemployment,” said Kevin Cummins, chief economist at NatWest Markets in Stamford, Connecticut. In turn, we expect spending to slow as consumers become less willing to cut back on savings in the face of a deteriorating labor market.

Reporting by Lucia Moticani; Edited by Andrea Ricci

Our Standards: The Thomson Reuters Trust Principles.

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