Fourth-quarter 2022 GDP: What economists predict
Financial progress is predicted to have slowed barely within the fourth quarter however was nonetheless strong, pushed by a powerful shopper.
Economists might be finding out Thursday’s report on U.S. gross home product fastidiously for indicators of how sturdy or weak the buyer really was on the finish of 2022. Retail gross sales counsel spending fell off sharply because the yr got here to an finish. GDP is reported at 8:30 a.m. ET.
In response to Dow Jones, economists anticipate that U.S. gross home product grew by 2.8% within the fourth quarter, down from the three.2% tempo within the third quarter.
Whereas economists see a powerful fourth quarter, they’re divided on the place the financial system goes from right here and a secret is the buyer. Some say the sharp 1.1% drop in December retail gross sales reveals the buyer pulled again on the finish of the quarter, presumably a prelude to recession. Nonetheless, others say it is too quickly to rely the buyer out, and the financial system may nonetheless keep away from a contraction.
“I do know the consensus view is recession is imminent, however I am skeptical of that,” mentioned Amherst Pierpont chief economist Stephen Stanley. If there’s a recession, he expects it might be extra possible in 2024. “I feel we stumble via 2023.”
However Kevin Cummins, NatWest chief U.S. economist, mentioned he sees a recession on the horizon and he has penciled in a 1% decline in first-quarter GDP, after an estimated 3.2% acquire within the fourth quarter.
He mentioned the Federal Reserve’s charge hikes have a lagged impact on the financial system, and so they have already despatched housing right into a recession. The slowdown in residential funding has taken a full proportion level off of progress within the fourth quarter, he mentioned.
“Actual export progress goes to be weak. Inventories have been rebuilt sufficient that you just’re not going to get a lot juice from that,” he mentioned. “It simply looks as if all the foremost parts in GDP are all on the identical aspect going ahead, pointing to weaker progress.”
Cummins mentioned the buyer was nonetheless sturdy to start with of the fourth quarter. “However the momentum since then has weakened fairly noticeably,” he mentioned. “It looks as if there’s going to be a fairly large gap to dig out of the place you ended the fourth quarter. So the primary quarter goes to start out fairly weak.”
KPMG’s chief economist Diane Swonk mentioned the buyer slowed and so did the momentum within the financial system on the finish of the fourth quarter. She expects a shallow recession this yr.
“Fourth quarter-to-fourth quarter progress is about 0.8%. 12 months-over-year, it is about 2%. We ended 2021 on such a powerful word after nearly 6% progress,” she mentioned. “Fourth quarter-to-fourth quarter is extra about momentum, and that slowed regardless of the 4.5 million paychecks we created.”
The patron powers two-thirds of the U.S. financial system so consumption is a serious swing consider GDP, which measures the worth of the ultimate items and providers produced within the U.S. financial system.
Michael Gapen, Financial institution of America chief U.S. economist, mentioned he has pushed again his view on when a recession would possibly begin to the second quarter. He expects to see a still-strong shopper within the fourth quarter, including that the decline in December retail gross sales wasn’t an correct reflection of shopper spending, which can have been introduced ahead within the quarter.
“The sign ought to be consumption held up within the quarter. The open query is how a lot did private spending fade into the top of the yr. Was it only a items story or was it a providers story too?” Gapen mentioned. “That can feed your narrative of whether or not the slowdown has broadened.”
The Federal Reserve will even be watching to see how effectively the buyer is holding up when the central financial institution meets subsequent week, Gapen mentioned. He expects it to boost its fed funds goal by one other quarter level.
“We have been saying in current months that the slowdown ought to unfold past housing and into manufacturing. … That sign is obvious, and it is sensible to me. The sign round consumption has nonetheless been fairly good, and you’ll’t get a recession till consumption rolls over,” mentioned Gapen. “That is why we have to see the composition of the info to see momentum at year-end.”
Stanley mentioned he thinks a recession might be postpone as a result of the buyer will proceed to be sturdy and the employment outlook is nice.
“I feel the financial system within the quick time period proves extra resilient. … There is a massive debate about how a lot of that cushion has been exhausted, however I feel households are nonetheless sitting on an enormous quantity of liquid belongings that they’ll spend,” Stanley mentioned. “I don’t anticipate a recession this yr. If we will get one, it is extra more likely to are available 2024, at which level households would have drawn down extra of the pandemic cushion and you’ll have an prolonged interval of a restrictive financial coverage.”
Some market strategists see a powerful fourth quarter as one other signal the financial system may keep away from falling into recession, and a better-than-expected report may reinforce that view.
“I feel it actually begins to construct a case for a smooth touchdown, or if we’ve got recession it is a milder recession than what individuals have been pondering up to now,” mentioned Jim Caron, head of macro methods for world mounted earnings at Morgan Stanley Funding Administration.