2023-04-28 08:15:00
The U.S. recession that many investors were expecting did not materialize in the first quarter and probably won’t occur in the second.
The U.S. recession that many investors were expecting did not materialize in the first quarter, and probably won’t happen in the second.
Real gross domestic product (GDP), adjusted for inflation, rose at a 1.1% annual rate in the first quarter, the Commerce Department said on Thursday. That was down from the 2.6% increase in the fourth quarter of last year and the 2% growth forecast by economists polled by The Wall Street Journal. Still, it qualifies as a solid economic growth report.
Two pieces of data released earlier in the week suggested U.S. first-quarter GDP would fall short of economists’ expectations: Monday’s adjusted retail sales data showed slower growth in consumer spending; Wednesday’s report on durable goods showed Business investment has weakened. But according to the report released on Thursday, consumer spending rose 3.7% in the last quarter from a year earlier, better than the 1% increase in the fourth quarter of last year. Business investment also rose slightly. Final sales to private domestic consumers rose a solid 2.9 percent in the first quarter of this year, after being flat in the fourth quarter of last year; the measure of latent demand in the economy.
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The U.S. recession that many investors were expecting did not materialize in the first quarter, and probably won’t happen in the second.
Real gross domestic product (GDP), adjusted for inflation, rose at a 1.1% annual rate in the first quarter, the Commerce Department said on Thursday. That was down from the 2.6% increase in the fourth quarter of last year and the 2% growth forecast by economists polled by The Wall Street Journal. Still, it qualifies as a solid economic growth report.
Two pieces of data released earlier in the week suggested U.S. first-quarter GDP would fall short of economists’ expectations: Monday’s adjusted retail sales data showed slower growth in consumer spending; Wednesday’s report on durable goods showed Business investment has weakened. But according to the report released on Thursday, consumer spending rose 3.7% in the last quarter from a year earlier, better than the 1% increase in the fourth quarter of last year. Business investment also rose slightly. Final sales to private domestic consumers rose a solid 2.9 percent in the first quarter of this year, after being flat in the fourth quarter of last year; the measure of latent demand in the economy.
The biggest drag on GDP in the first quarter was the decline in inventories, which dragged down the quarter’s GDP growth by 2.26 percentage points. But that could be a positive for GDP in the current quarter. Even if businesses simply choose to keep inventory levels steady, they may need to ramp up production to meet demand.
Another potential factor positive for GDP in the current quarter is the housing market, which, while still in disarray, is not as bad as it was last fall. Thursday’s report did show that the decline in residential investment dragged down first-quarter GDP growth by 0.17 percentage points, a drag that was much lower than the 1.2 percentage points in the fourth quarter and 1.42 percentage points in the third quarter.
The U.S. economy is indeed facing some big hurdles right now, including the fallout from the collapse of Silicon Valley Bank and Signature Bank (SBNY), the cumulative effect of the Federal Reserve’s interest rate hikes, and large corporate Mass layoffs could start to spread to other parts of the labor market. So far, however, none of this has been apparent. Indeed, the Labor Department reported on Thursday that initial jobless claims fell to 230,000 last week from 246,000 a week earlier, which was pretty low by pre-pandemic standards.
So despite a slight slowdown in consumer spending, the job market is still providing them with income to continue spending, which should keep the economy afloat for now. Furthermore, GDP is not the only indicator used to determine whether an economy is in recession. The National Bureau of Economic Research (NBER) studies a range of indicators, including employment, industrial production and consumer spending; before the U.S. government began compiling GDP and gross national product (GNP) data, the Whether the economy is in a recession has been judged by the NBER.
A recession may be on the horizon. But it doesn’t show up yet.
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