The United States ended 2022 with growth, as Americans continued to consume despite reduced purchasing power due to rising interest rates and inflation, and the question now is whether or not the country will experience a recession in 2023.
Gross domestic product (GDP) growth was 2.1% for all of 2022, the Commerce Department said Thursday.
This is a slower pace compared to 2021, which had seen the strongest growth since 1984: 5.9%. The previous year had seen the biggest drop in GDP since 1946 (-3.5%) and two months of recession due to the crisis caused by Covid-19.
In the fourth quarter alone, growth was 2.9% at an annualized rate, a measure favored by the United States, which compares GDP with that of the previous quarter and then projects the evolution of the entire year at this rate.
GDP growth is 0.7% calculated as other advanced economies do, that is, comparing the quarter with the previous one.
GDP is “stronger than expected,” said Rubeela Farooqi, chief economist at HFE.
US growth picked up in the third quarter (+3.2%), after two quarters of declining GDP (-1.6% in the first quarter, then -0.6% in the second).
Without falling into recession at this stage, however, according to the Joe Biden administration, and many economists, due to the strength, in particular, of the labor market.
“weaknesses”
Consumption, the engine of the US economy, remained strong at the end of 2022, despite the lightning bolts the Fed had thrown its way, hoping to curb too-high inflation.
In fact, although Americans largely use credit for their purchases, including everyday items, the institution wants to discourage them from borrowing too much money. To do this, it raises its key rate, which pushes commercial banks to increase the interest rates of the loans they grant to their clients.
However, “the end of the fourth quarter is a period where we saw weakness at the economic level,” Gregory Daco, chief economist at EY Parthenon, told AFP, citing in particular retail sales and industrial production, with “an environment in which the labor market, which is relatively strong, is weakening.
Consumers were already seeing their purchasing power eroded by inflation. They also had to deal with rate hikes.
And business leaders are walking on eggshells, as the forecasts are so uncertain. But they’ve had such trouble recruiting for nearly two years that they’d rather keep their employees, despite the uncertainties, rather than fire them.
And by 2023, growth or recession?
“The US economy will experience a mild recession in 2023, driven by the Fed’s tight monetary policy and tighter financial conditions,” Ryan Sweet, chief economist at Oxford Economics, predicted in a note, seeing the economy shrinks in the second trimester.
“At the moment, the economic indicators point rather to a recession, which would have started at the turn of the year, December-January”, with perhaps even job losses from January, underlines Gregory Dako for his part.
But, he qualifies, even if the unemployment rate -from 3.5% in December- increases a little, it could remain below 4%, “which is a record low”. “That’s the unique feature of this cycle.”
“It changes the game since it is the key element that sustains consumption”, itself “pillar of the US economy”, he adds.
The labor market as a bulwark
This is also what leads other economists to expect continued growth.
“The main bulwark that everyone is pointing to is the labor market,” which added to the savings accumulated by households during the pandemic allows them to continue consuming, emphasizes Matt Colyar, Moody’s economist.
However, it has such weak growth “that you will have to squint to say if it is a recession or not”, around 1% per year.
Only one organization in the United States has the authority to officially determine recession periods: the National Bureau of Economic Research (NBER). But their ads are posted months late.
Source: BFM TV
