The U.S. economy has done it again. The ‘advance’ estimate (1 of 3) of fourth quarter Gross Domestic Product growth of all things bought and sold domestically grew 2.9 percent, down slightly from 3.2 percent in Q3.
Consumer spending that accounts for some 70 percent of activity gave it the biggest boost, up 2.1 percent, while government spending rose 3.7 percent for the second quarter in a row.
Consumers and governments (state and federal) will continue spending in 2023 because there is so much money in circulation, as much as the Fed is attempting to shrink the money supply with its credit tightening moves.
The most important figure was inflation that rose at an annual 3.2 percent rate in Q4, falling from a 4.3 percent advance in the prior three-month period.
The so-called inflation deflator used in the Bureau of Economic Analysis that measures the aggregate prices for all goods and services transacted domestically is signaling that inflation will continue to decline. So why shouldn’t we be hopeful that 2023 might be a better year for Americans?
Enough with the numbers. The financial markets are rallying on the good inflation news and interest rates are tumbling.
“The increase in real GDP reflected increases in private inventory investment, consumer spending, federal government spending, state and local government spending, and nonresidential fixed investment that were partly offset by decreases in residential fixed investment and exports,” said the BEA.
Manufacturing isn’t doing so well, but it makes up much less of GDP. New orders for manufactured goods jumped 5.6 percent in December because of a huge number of new contracts for Boeing passenger planes, but business investment was weak again in another sign of a slowing U.S. economy in the New Year.
What are the possibilities for growth in 2023? Two S&P surveys showed the U.S. economy got off to a weak start in 2023. Business conditions contracted again in January for the fourth month in a row, but showed signs of improvement,
The S&P Global “flash” U.S. services sector index rose to a three-month high of 46.6 from 44.7 in December, which employs most Americans. The S&P Global U.S. manufacturing sector index, meanwhile, edged up to 46.7 from a 31-month low of 46.2 at the end of last year.
In other words, U.S. consumers are keeping the economy chugging along. Both personal incomes and personal savings are keeping up with inflation, according to the BEA.
Current-dollar personal income increased $311.0 billion in the fourth quarter, compared with an increase of $283.1 billion in the third quarter. The increase primarily reflected increases in compensation (led by private wages and salaries), government social benefits, and personal interest income.
Disposable personal income increased $297.0 billion, or 6.5 percent, in the fourth quarter, compared with an increase of $242.4 billion, or 5.4 percent, in the third quarter. Real disposable personal income increased 3.3 percent, compared with an increase of 1.0 percent.
And the main ingredients of consumer prices continue to decline—gas, food, and housing prices (or equivalent rents, in the case of housing)—which should make disposable incomes go further in household budgets.
This means consumers can maintain their spending ways as inflation continues to decline, particularly in travel and leisure activities, perhaps dodging a recession.
Harlan Green © 2023
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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