US Q4 GDP Up 2.9% Last Year... Recession Concerns This Year (Summary)

[Asia Economy New York=Special Correspondent Joselgina] Despite ongoing recession concerns, the U.S. economy recorded solid growth in the fourth quarter of last year. However, the key issue lies in this year. As consumer spending, which supports a significant portion of the U.S. economy, shows signs of slowing down, concerns over this year’s growth outlook are increasing.

[Image source=AP Yonhap News]

According to the U.S. Department of Commerce on the 26th (local time), the real Gross Domestic Product (GDP) growth rate for the U.S. in the fourth quarter of last year was 2.9% annualized. This slightly exceeded the expert forecast of 2.8% compiled by The Wall Street Journal (WSJ). The U.S. growth rate is announced in three stages: advance estimate, second estimate, and final estimate. The figure released on this day is the advance estimate and may be revised later.

The U.S. economy retreated in the first (-1.6%) and second (-0.6%) quarters of last year, entering a technical recession, but resumed growth from the third quarter (+3.2%). With the fourth quarter also surpassing Wall Street expectations, the annual growth rate for 2022 was positive.

Last year’s annual GDP increased by 2.1% compared to the previous year. Although this was weaker than the previous year’s 5.9%, it is evaluated as showing solid growth despite the Federal Reserve’s (Fed) aggressive tightening and the resulting recession concerns.

The Department of Commerce stated that growth in the fourth quarter was driven by increases in private inventory investment, consumer spending, federal, state, and local government spending, and nonresidential fixed investment. In the private sector, inventory investment increased in petroleum, coal, chemical product manufacturing, mining, and utilities (water, electricity, gas), and consumer spending rose for both goods and services.

However, signs of a slowdown in growth due to the Fed’s aggressive interest rate hikes were also confirmed. Consumer spending, which accounts for more than two-thirds of the U.S. economy, increased by 2.1% last quarter, but this was slightly lower than the 2.3% increase in the third quarter. The slowdown in consumer indicators became more apparent in the second half of the year. Residential fixed investment, exports, and imports also declined last quarter. In particular, residential fixed investment plunged by 26.7%, reflecting the housing market downturn.

Concerns about the U.S. economy this year continue to be raised. The Fed’s aggressive tightening, which began last year to curb inflation, is expected to have a delayed effect, potentially leading to a recession this year or next. Recently, U.S. manufacturing and housing market indicators have also shown clear signs of recession. Economic media CNBC reported that these economic slowdown signals were also confirmed in recent fourth-quarter corporate earnings reports.

Andrew Hunter, Chief U.S. Economist at Capital Economics, said, "I still expect the impact of the rapid rise in interest rates to push the economy into a mild recession in the first half of this year." Jim Baird, Chief Investment Officer at Plante Moran Financial Advisors, noted, "The economy is not as strong as the fourth-quarter GDP suggests. While it showed solid growth at the end of last year supported by consumer spending, it is vulnerable as a more pronounced slowdown is expected over the next few quarters."

The day before, the United Nations Department of Economic and Social Affairs (UN DESA) also lowered its growth forecast for the U.S. and the global economy in 2023 due to the effects of the Ukraine war, inflation, and financial tightening. The U.S. GDP growth rate for this year is expected to be only 0.4%, down 1.4 percentage points from the previous forecast.

Meanwhile, the New York Stock Exchange opened higher on the day due to economic indicators, including the GDP growth rate, that exceeded expectations.