The United States economy is showing signs of a potential downturn, as several prominent CEOs have been talking about the increased likelihood of a recession during recent quarterly earnings conference calls. However, economists are forecasting solid growth for the fourth quarter of 2022, with a predicted annualized rate of 2.6% according to Refinitiv. The GDPNow model from the Federal Reserve Bank of Atlanta, estimates that GDP growth for the fourth quarter was 3.5%.
Retail Sales Tumble
Retail sales dropped in December as the effects of inflation impacted consumers. The manufacturing sector is contracting. Despite concerns about a decrease in consumer spending during the holiday season, economists are predicting robust growth for the fourth quarter. However, there are growing concerns on Wall Street that the Fed’s aggressive series of interest rate hikes in 2022 will finally take their toll on the economy this year, with a lag between when the Fed raises rates and changes in consumer behavior.
Housing Market Impact
The housing market has already been hit as a result of the Fed’s actions, with mortgage rates spiking and hurting home sales. Many big companies in the tech, consumer, and financial sectors are preparing for a downturn by cutting jobs, which could lead to a further pullback in retail sales and push inflation pressures lower.
Hope for a Soft Landing
Despite these concerns, some experts continue to hold out hope that the US economy can avoid a recession, or if there is one, it will be shallow rather than deep. The Fed now seems willing to do only small rate hikes and the market is betting the Fed will pause later this year. Additionally, oil prices have tumbled sharply from their peak last summer, which is good news for consumers and businesses. The Fed’s seeming unwillingness to stop raising rates too soon is actually a good thing, as the Fed doesn’t want to make the mistake of stopping too soon as it did during the 1980s inflation crisis.
Additional Factors
The vaccine rollout and the stimulus package passed by the government are expected to boost consumer spending and economic growth. The unemployment rate is low and consumer confidence is still relatively high. However, it’s important to note that the global economic situation and events such as a potential trade war, geopolitical conflicts, and natural disasters could also have an impact on the US economy.
GDP Snapshot
There will be more information when the US Bureau of Economic Analysis provides its first estimate of gross domestic product (GDP) for the fourth quarter. GDP is the most extensive overview of economic activity, which encompasses consumer, business, and government spending data. In last year’s third quarter, the economy grew at an annualized rate of 3.2% following two quarters of declines in the first half of the year.
More Data Needed
While there are some warning signs for a potential recession, it’s important to wait for more data and developments before making any definitive conclusions. More blue chip companies will report fourth quarter results this week, which may give guidance about the first quarter of 2023 and beyond. Tech titans such as Apple, Facebook, and Amazon are among those set to report.
Overall, while the economy may have experienced a hiccup in the first half of 2022, the current situation doesn’t sound dire. Growth of around 3% for the second consecutive quarter is not something to be underestimated. However, it’s important to remember that GDP is backward looking and provides no insights about where the economy is heading. The next few weeks and months will give a clearer picture of the economy’s trajectory and whether or not a recession is imminent.
