US Q4 GDP Growth Rate 3.4%... Up 0.2%P
US Bankers Association Lowers Recession Probability from 50% to 30%
Rosenberg: "Fed's Three Rate Cuts This Year Signal Recession"
The U.S. economy continued its robust growth in the fourth quarter of last year. Although experts had anticipated a slowdown in growth from the end of last year, strong consumer spending helped achieve a growth rate in the mid-3% range, significantly exceeding the potential growth rate. With solid employment and growth rates alongside easing inflation, experts are increasingly weighing the likelihood of a soft landing for the U.S. economy. However, some warn that the Federal Reserve's (Fed) signal of three interest rate cuts within the year presupposes a recession, drawing attention to the state of the U.S. economy.
U.S. Q4 GDP Growth Rate 3.4%... Revised Up by 0.2%P
According to the U.S. Department of Commerce on the 28th (local time), the final GDP growth rate for the U.S. in the fourth quarter of last year was 3.4% annualized. This is a 0.2 percentage point upward revision from the preliminary estimate of 3.2% released last month. The U.S. economic growth rate is announced three times: advance, preliminary, and final estimates. Unlike Korea, the U.S. converts quarter-on-quarter growth rates (seasonally adjusted) into annualized growth rates for publication. The confirmed annual growth rate for 2023 was recorded at 2.5%, unchanged from previous estimates.
Strong consumer spending and increased corporate investment in non-residential facilities such as factories drove the upward revision of the fourth-quarter growth rate. Consumer spending, which accounts for two-thirds of U.S. economic activity, increased by 3.3%, contributing 2.2 percentage points to GDP growth. Previously, it was estimated to have increased by 3%, but strong year-end surprise consumption supported by a robust labor market propelled the growth rate. Bill Adams, chief economist at Comerica Bank in Dallas, assessed that "the economy is in a good position."
Additionally, consumer sentiment improved, and expected inflation declined. The University of Michigan's final consumer sentiment index for March recorded 79.4, the highest since July 2021. It surpassed both the previous month’s figure (76.9) and expert forecasts (76.5). Expected inflation one year ahead was 2.9%, and five years ahead was 2.8%, both down by 0.1 percentage points from the previous month.
American Bankers Association: "Recession Probability Down from 50% to 30%"
With the confirmation of the U.S. economy’s robust growth, solid employment, and easing inflation, market expectations for a soft landing are spreading. The Economic Advisory Committee of the American Bankers Association (ABA), composed of economists from major U.S. banks, announced in its latest forecast that the probability of a U.S. recession is estimated at about 30%. This is a significant drop from the 50% recession probability forecasted in September last year. The ABA regularly provides its forecasts to the Fed.
The ABA expects U.S. economic growth rates of 1.7% in 2024 and 1.8% in 2025. Inflation is projected to continue easing toward the Fed’s 2% target through the second half of 2025. The unemployment rate is expected to rise slightly from the current 3.9% to 4.1% by the end of this year, and monthly new job creation is forecasted to decrease from 139,000 this year to 117,000 next year. The ABA anticipates a 'Goldilocks' scenario?where economic growth continues and inflation eases without overheating or cooling too much. Earlier, the Fed also hinted at the possibility of a soft landing by forecasting a 2.1% GDP growth rate and a 2.6% core personal consumption expenditures (PCE) price index increase at the March Federal Open Market Committee (FOMC) meeting.
Simona Mokuna, chair of the ABA committee, said, "The combination of resilient growth and easing inflation last year is historically unusual and should be celebrated," adding, "As wage pressures ease and progress on inflation materializes, the Fed will likely begin to reduce its restrictive policy stance later this year."
"U.S. Fed’s Three Rate Cuts This Year Signal Recession"
On the other hand, some express pessimistic views that a recession is imminent. David Rosenberg, founder of Rosenberg Research and a well-known Wall Street economist, stated in an investor memo that "Although the Fed is not explicitly saying so, it is signaling a very high likelihood of a recession." Despite the Fed’s forecast of 2.1% growth and 4% unemployment this year, the prediction of three rate cuts within the year itself implies an assumption of recession.
Earlier, at this month’s FOMC meeting, the Fed’s dot plot indicated a median federal funds rate decline of 150 basis points (1bp = 0.01 percentage points) by 2025 and 225 basis points by the end of 2026. Rosenberg pointed out that during the years the U.S. economy achieved a soft landing?1987, 1995, 1998, and 2019?the rate cuts were limited to 75 basis points. He warned, "Except for the sharp oil price drop in 1984, the only time since World War II that rates were cut by about 150 basis points was for one reason only: a recession was imminent," signaling a warning of an impending downturn.
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