The U.S. economy likely slowed but still posted solid growth in the fourth quarter

The U.S. economy likely slowed but still posted solid growth in the fourth quarter

WASHINGTON (AP) — The U.S. economy likely sailed into 2022 with momentum, recording decent growth in the face of painful inflation, high interest rates and growing fear that a recession could be months away. .

Economists estimated that gross domestic product – the broadest measure of economic output – grew at an annual rate of 2.3% from October to December, according to a survey of forecasters from data firm FactSet.

The Commerce Department will release the first of three estimates for fourth-quarter GDP growth Thursday at 8:30 a.m. ET.

Despite a likely second quarter expansion, the economy is expected to slow and then slip into a recession over the next few months as increasingly high interest rates, engineered by the Federal Reserve, take their toll. The Fed’s rate hikes have inflated borrowing costs for consumers and businesses, from mortgages to auto loans to business credit.

The housing market, which is particularly vulnerable to higher lending rates, has been hit hard: sales of existing homes have fallen for 11 straight months. Housing investment plunged at an annual rate of 27% from July to September.

And consumer spending, which powers about 70% of the entire economy, is expected to slow in the coming months, along with the still buoyant job market. The resilience of the labor market was a major surprise. Last year, employers added 4.5 million jobs, just behind the 6.7 million that were added in 2021 in government records dating back to 1940. And last month’s unemployment rate, 3.5 %, was a 53-year low.

But the good times for American workers are unlikely to last. As higher rates make borrowing and spending increasingly expensive across the economy, many consumers will spend less and employers will likely hire less.

Last year, the Fed raised its benchmark rate seven times in unusually large increments in an attempt to rein in soaring consumer prices. Another Fed rate hike, albeit more modest, is expected next week.

The central bank reacted to an inflation rate that remains stubbornly high even though it has gradually come down. Year-on-year inflation was raging at a rate of 9.1% in June, the highest level in more than 40 years. It has since cooled – to 6.5% in December – but remains well above the Fed’s 2% annual target.

Another threat to the economy this year is rooted in politics: House Republicans could refuse to raise the federal debt ceiling if the Biden administration rejects their demand for sweeping spending cuts. A failure to raise the borrowing limit would prevent the federal government from being able to pay all of its obligations and could break its credit.

Moody’s Analytics estimates that the resulting upheaval could wipe out nearly 6 million American jobs in a recession similar to the devastating one triggered by the 2007-09 financial crisis.

At least the economy is probably starting the year on a stronger footing than at the start of 2022. Last year, the economy contracted at an annual rate of 1.6% from January to March and 0.6% additional from April to June. These two consecutive quarters of economic contraction have raised fears of the onset of a recession.

But the economy regained strength over the summer, propelled by resilient consumer spending and higher exports. It increased at a surprisingly high annual rate of 3.2% from July to September.

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