Last Update: January 27, 2023, 12:51 pm IST
For all of 2022, US GDP is projected to grow 2.1 percent after growing 5.9 percent in 2021.
It ends 2022 with momentum despite pressure from higher interest rates and widespread fears of an impending recession
The US economy expanded at a 2.9 percent annual pace from October to December, despite pressure from higher interest rates and widespread fears of a recession to end 2022 on pace. Thursday’s estimate from the Commerce Department showed the country’s gross domestic product – the broadest gauge of economic output – shrank in the last quarter from the 3.2 percent annual growth rate it posted from July to September.
Most economists expect the economy to slow further in the current quarter and slip into at least a mild recession by the middle of the year. Resilient consumer spending and resumption of supplies by businesses boosted the economy in the last quarter. Federal government spending also helped drive GDP.
But investment in housing fell at a 27 percent annual rate for the second straight quarter, with higher mortgage rates driving down residential real estate.
For all of 2022, GDP is projected to expand by 2.1 percent, following a 5.9 percent increase in 2021.
The expected slowdown of the economy is an intended result of the Federal Reserve’s aggressive series of rate hikes. The Fed’s hike is meant to stifle growth, reduce spending and crush the worst inflation battle in four decades. Last year, the Fed raised its benchmark rate seven times. It is set to do so again next week, although this time by a smaller amount.
A big surprise has been the resilience of the US job market. Last year, employers added 4.5 million jobs, second only to the 6.7 million added in 2021, a government record from 1940. And last month’s unemployment rate, 3.5 percent, matched a 53-year low.
But the good times for America’s workers are not going to last long. Since higher rates make it more expensive to borrow and spend in the economy, many consumers will spend less and employers will hire less.
The Fed is responding to an inflation rate that remains persistently high, despite a gradual easing. Year-on-year inflation was rising at 9.1 per cent in June, the highest level in more than 40 years. It has cooled since then — 6.5 percent in December — but is still well above the Fed’s 2 percent annual target.
Another threat to the economy this year is rooted in politics: House Republicans could refuse to raise the federal debt limit if the Biden administration rejects their demand for sweeping spending cuts. Failure to raise the borrowing limit would prevent the federal government from being able to pay all of its obligations and could break its credit.
Moody’s Analytics estimates that the resulting upheaval could wipe out nearly 6 million American jobs, similar to the devastating recession triggered by the 2007–2009 financial crisis.
At least the economy is likely to start 2022 stronger than it was at the beginning. Last year, the economy shrank at an annualized pace of 1.6 per cent from January to March and 0.6 per cent from April to June. , Those two consecutive quarters of economic contraction raised fears that a recession might be starting.
But the economy rebounded during the summer, driven by resilient consumer spending and higher exports.
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(This story has not been edited by News18 staff and is published from a syndicated news agency feed)