Today’s GDP report from the BEA reminds me of the peggy lee song “That’s all there is?” Between the Fed’s massive monetary stimulus since late 2008 (and particularly since Covid in 2020) and all the federal spending (Covid relief, inflation reduction, Omnipork spending bill, etc.), US real GDP rose just 2.9% in the fourth quarter from the third quarter.
But signs of a slowdown in underlying demand have increased as the steepest interest rate hikes in decades threaten growth this year.
Gross domestic product rose at an annualized rate of 2.9% in the last three months of 2022 after a 3.2% gain in the third quarter, the Commerce Department’s initial estimate showed Thursday.
Personal consumption, the bulk of the economy, rose at a slower-than-expected pace of 2.1% (the forecast was 2.9%). Again,
The report also showed some signs of stress for American consumers whose wages have not kept up with inflation and continued to encourage them to withdraw accumulated savings from government pandemic relief programs. The burden of high prices and higher borrowing costs is mounting, pointing to a dim outlook for the economy.
A key indicator of underlying demand that excludes the trade and inventory components (inflation-adjusted final sales to domestic buyers) rose an annualized 0.8% in the fourth quarter after a 1.5% gain.
Core PCE growth grew by 3.9% but is already slowing as M2 Money growth dies.
Stock index futures and Treasury yields held higher and the dollar was little changed after the better-than-expected GDP report and weekly jobless claims. Jobless claims fell to 186,000 last week, the lowest level since April.
Recent data shows that the cracks are developing more broadly. Data for retail and motor vehicle sales showed that households are beginning to reduce their spending, the housing market continues to weaken and some companies are rethinking capital spending plans.
As the Federal Reserve continues to raise interest rates to ensure inflation is quenched, housing and manufacturing have deteriorated rapidly, while industries including banking and technology are carrying out massive layoffs.
The GDP report showed that the personal consumption expenditures price index, a key inflation metric for the Fed, rose at an annualized rate of 3.2% in the fourth quarter, below the 4.3% pace in the previous three months. The core index excluding food and energy rose at a rate of 3.9% compared to 4.7% in the previous two quarters. Monthly data for December will be released on Friday.
The easing in price pressures is consistent with forecasts that the Fed will further ease its tightening campaign next week, when it is expected to raise rates by 25 basis points. Policymakers boosted the benchmark rate by 50 points in December after increases of 75 basis points at their previous four meetings.
The world’s largest economy expanded 2.1% last year. In 2021, as demand recovered from pandemic-related shutdowns, the economy grew 5.9%, the best performance since 1984.
GDP data showed that spending on services rose at an annualized rate of 2.6% in the October-December period, the slowest since the first quarter of last year. Outlays on goods increased at a 1.1% pace, the first advance since 2021.
Business investment slowed sharply after a surge in the third quarter. Equipment spending decreased 3.7% annualized, the most since the second quarter of 2020. Structure spending increased at a 0.4% pace.
Let’s hope the BEA isn’t ramping up the numbers like the BLS did in the first half of 2022.
Lastly, US real GDP growth yoy FALLED to just 0.95925% as M2 Money growth fades.
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