2.9 percent growth for US economy in the fourth quarter

Washington The US economy grew at an annualized rate of 2.9 percent in the fourth quarter. This was announced by the US Department of Commerce on Thursday.

The economy was still going quite well before the turn of the year, even if the USA is plagued by recession worries due to rising interest rates and high inflation. Experts surveyed by the Reuters news agency had expected an annualized increase of 2.6 percent, after growth of 3.2 percent in the summer quarter.

US growth numbers are annualized. They indicate how much the economy would grow if the current pace continued for four quarters. The figures are therefore not directly comparable with data from Europe. To approximate a growth rate comparable to Europe, you would have to divide the US rate by four.

The strong growth contrasts with the pessimism that still prevailed at the turn of the year. At the time, most economists had described a US recession as inevitable. But now those who have recently sounded more optimistic are right.

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Lael Brainard, deputy chair of the US Federal Reserve, also believes it is possible that the world’s largest economy could avoid a recession. For 2023, the Fed expects economic growth to average 0.5 percent.

The declining inflation rates have recently fueled hopes that the economic downturn will be less severe. In December 2022, the inflation rate fell to 6.5 percent – the lowest level since October 2021.

Maybe no recession in the US after all?

“2020 was the pandemic. 2021 was the recovery from the pandemic. 2022 was the year of transition,” said Jay Bryson, chief economist at Wells Fargo. In retrospect, 2022 was “an acceptable year” – a look back that seemed unthinkable just a few months ago.

And the prospects are quite positive. “The economic engine continues to hum,” observes Michael Gapeb, chief economist at Bank of America. “The economy ended the year with more momentum than we thought and a lot of that is coming from households.”

In fact, Americans have continued to spend even though their savings from the Corona period have been depleted. Instead, they have been charging their credit cards more recently in order to continue shopping despite higher prices. According to figures from the Department of Commerce, consumers increased their spending by 2.1 percent in the fourth quarter, after 2.3 percent in the summer. Domestic consumption, which is particularly important for the US economy, has thus remained relatively stable.

The labor market also remains robust despite the recent layoffs in the tech industry. Many companies have announced that they will hire additional staff.

Those economists who have doubted the pessimism of their colleagues in recent weeks are right about the surprisingly strong growth. This includes the chief economist at rating agency Moody’s, Mark Zandi. He had already tweeted at the turn of the year that he considered his colleagues’ concerns to be exaggerated. “I’m puzzled by the overwhelming consensus among economists that a recession is all but inevitable“, he wrote.

A few days ago, Zandi spoke up again and argued that currently three indicators speak against a recession: On the one hand there is the record high number of completed new buildings, which will continue to depress rents and house prices.

In addition, gas prices have continued to fall and consumers’ inflation expectations are also falling. This is crucial because economists believe there is a strong correlation between expected and actual inflation. According to Zandi, the Americans surveyed expect only four percent inflation for 2023.

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The economist assumes that inflation will continue to fall quickly, giving the Fed less reason to take drastic interest rate hikes.

Economist speaks of “jackpot for the Fed”

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, recently even wrote about a possible “Goldlocks scenario” in which inflation falls without the labor market collapsing. “The trend in the US job market is cooling, although 200,000 monthly new jobs are far from a recession,” writes Ozkardeskaya.

That’s good news. The economist even writes of a “jackpot for the Fed”.

More: US inflation falling – but is a recession imminent?

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