Last year is ending in better shape than it began. Instead of shrinking in the first two quarters of 2022, US GDP growth has turned positive in Q3 and Q4, as portrayed in the above graph of real, or inflation adjusted, Gross Domestic Product growth.
Fourth quarter GDP was reduced slightly from 2.9 to 2.7 percent in the second of three revisions, yet the overall year is shaping up to grow 2.1 percent, much like in pre-pandemic 2019.
The BEA release said, “The increase in real GDP in the fourth quarter reflected increases in private inventory investment, consumer spending, nonresidential fixed investment, federal government spending, and state and local government spending that were partly offset by decreases in residential fixed investment and exports. Imports decreased,” said its press release.
Its main strengths were strong consumer spending and investments in plants and equipment, no surprise with the Inflation Reduction and Infrastructure Act $trillions that are being invested over the next 10 years.
The White House said whereas the Bipartisan Infrastructure Law invests $1.2 trillion on overhauling the nation’s roads and bridges, electric and water systems, and high-speed internet; the Inflation Reduction Act would fund energy production and manufacturing, reduce carbon emissions, lower prescription prices and extend affordable healthcare coverage.
The GDP measure of inflation was better, dropping to 3.7 percent from 4.4 percent. Inflation rose at an annual 3.7 percent pace in the fourth quarter, compared with a 4.3 percent increase in the prior three-month period. For the full year, inflation surged 6.8 percent, the biggest increase since 1982, which won’t make the Fed Governors happy.
However, US inflation has fallen faster than in other developed countries, as was highlighted by the New York Times David Leonhardt in an interview with Brian Deese, who stepped down as Biden’s chief economic advisor, due to our quicker recovery.
Europeans have bigger problems in taming inflation, like greater supply chain disruptions caused by Covid and the energy price increases caused by Russia’s invasion of Ukraine that have slowed down eurozone growth.
The US is shaping up to continue strong growth in the New year with full employment and initial jobless claims at seasonal lows. Initial jobless claims fell by 3,000 to 192,000 in the week ending Feb. 18, the Labor Department said Thursday. That’s the sixth straight week below 200,000 is a signal of a strong labor market, and the lowest level in three weeks.
And the Atlanta Fed continues its upbeat GDPNow estimate of first quarter 2023 growth.
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2023 is 2.5 percent on February 16, up from February 15. After this morning’s housing starts report from the US Census Bureau, the nowcast of first-quarter real residential investment growth increased from -10.4 percent to -8.1 percent.
Does it mean real estate could lead us out of the current slowdown? Stay tuned, as the University of Michigan consumer sentiment survey rose in early February to a 13-month high of 67, suggesting somewhat greater optimism about the economy among U.S. households.
Harlan Green © 2023
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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