The United States ended 2022 with an annual growth of 2.1%, and the ghost of the recession is still present

The US economy ended 2022 with a growth of 2.1%sustained by population consumption despite lower purchasing power in an inflationary environment, and now the question is whether the world’s largest power Will it enter a recession or not in 2023?.

Official data released on Tuesday showed that GDP grew 2.1% in 2022, compared with 2021.

In 2021, again according to data from the Department of Commerce which maintains growth data, the country recorded the largest annual economic expansion since 1984: 5.9%. Of course there is a statistical effect, since the basis for comparison was the year 2020when the pandemic caused the largest contraction in GDP since 1946 (-3.5%) and two months of recession.

In the fourth quarter of last year, US economy grew 2.9% year-over-year projectionthe measure used in the United States that projects 12-month growth based on prevailing conditions at the time of measurement.

In other countries, quarter-over-quarter growth is simply compared, using seasonally adjusted data. If this formula were applied, the expansion would be 0.7%.

GDP performed better than expected, summed up Rubeela Farooqi, chief economist at HFE.

The GDP of the United States had already recovered on an annual basis in the third quarter (3.2%) after two quarters of decline.

albeit technically some consider two quarters of decline to be a recessionMany, from the government to many economists, also take into account the strength of the labor market, among other factors, and point out that there was no US recession last year.

solidity in consumption

Consumption, the engine of growth in the United States, remained solid at the end of 2022, despite the rate hikes decided by the Federal Reserve to try to cool the economy and ease pressure on prices.

Raising interest rates means making credit more expensive, and therefore consumption and investment.

While there was consumption, “at the end of the fourth quarter” of 2022 “we saw weaknesses in the economy,” Gregory Daco, chief economist at EY Parthenon, told AFP, citing retail sales and industrial production in particular.

Furthermore, “the relatively solid labor market it is weakening“, He added.

Consumers are feeling the erosion of their purchasing power due to inflation and the rising cost of credit.

But even with more expensive credit, durable goods orders, which include large business purchases, were up sharply in December versus November, up 5.6%.

And the phenomenon of recruitment difficulties persists in companies in general, even if some sectors such as technology – which massively absorbed personnel during the pandemic – have nevertheless proceeded to lay off thousands of people in the last weeks.

The specter of a recession in 2023 is conjured up by many, who they wonder if the economy will expand or rather the opposite.

The ghost of the recession

“The US economy will experience a mild recession in 2023, led by the Fed’s tightening monetary policy,” predicts Ryan Sweet, chief economist at Oxford Economics, in an opinion column in which expects a contraction in the second quarter.

“At the moment the economic indicators are pointing more towards a recession, which would have begun to take shape at the beginning of the year, even in December-January”, and perhaps with the destruction of jobs since January, remarked Daco for his part.

Daco acknowledges that the particular and unique factor in this possibly recessionary cycle is the strength of the labor market, with unemployment at 3.5%, an all-time low.

“It is the key element that underpins the consumption pillar (…) of the US economy,” he added.

With these data, many economists think that growth will continue.

“The main protective shield everyone is aiming at is the labor market”, which, added to the savings accumulated during the pandemic – when expenses have decreased and federal aid to families has been in the millions – allows Americans to continue consuming, has said Matt Colyar, economist at Moody’s.

Colyar expects weak growth and will have to “keep an eye on whether or not it’s a recession,” con a forecast of 1% GDP expansion for the year.

Source: AFP