US growth expected to slow in Q4 as recession fears loom

The US economy is expected to have grown, but at a slower pace in the final months of 2022, helped by consumer spending and business investment, although recession fears loom.

Economic activity has been easing as the US central bank raised the benchmark interest rate seven times last year, hoping to cool demand and rein in costs as inflation rose.

The real estate sector has slumped, followed by declines in retail and manufacturing sales.

Against this backdrop, the world’s largest economy is expected to expand 2.6 percent in the October-December period, according to a consensus analyst forecast, down from 3.2 percent in the third quarter of last year.

This would mark the second straight quarter of growth after two rounds of contraction.

But the housing sector was probably a drag, with mortgage rates still high and affecting affordability.

– Recession risks? –

While unexpectedly resilient consumer spending has supported growth, there are signs that households are reducing their savings during the pandemic period.

This could point to more moderate spending in the future, analysts say.

“Recent economic data indicates that the economy entered 2023 on a weak footing,” said Ryan Sweet of Oxford Economics.

He expects the US could enter a recession in the second quarter as consumers limit their spending and businesses become more reluctant to hire and invest.

But others believe the country can still avoid a recession.

Rubeela Farooqi of High Frequency Economics said healthy family balance sheets coupled with a strong job market could keep things positive this year.

“We are still seeing wage growth that is well above the pre-pandemic trend… We are not seeing an increase in jobless claims,” ​​he told AFP.

“Companies are very reluctant to lay off workers because they have had a lot of problems in terms of staffing,” he added.

Despite announcements of layoffs from major companies, the fact that applications are not increasing “means that many of these people are finding work,” he said.

Moody’s Analytics economist Matt Colyar added that excess consumer saving acts “like a firewall.”

Even if households are eating up their funds due to inflation, “they are coming off a very high point” and this should alleviate or prevent a prolonged recession, he said.

– ‘Contained’ layoffs –

Meanwhile, large-scale layoffs seem hard to imagine for now, Colyar added.

Despite job losses in the technology sector, retail giant Walmart, the largest US private employer, said on Tuesday it was raising its minimum wage, an indication of the continuing tightness in the job market.

“The labor supply issue is keeping people hiring, and it’s credible that the weakness we’re seeing will remain relatively contained,” Colyar added.

Looking ahead, Federal Reserve Vice Chair Lael Brainard has warned that the drag on growth and jobs from monetary policy is likely to increase in 2023 as it takes time for policy changes to affect the economy. .

“That said, there is uncertainty about the timing and magnitude,” he added in a speech last week.

It remains possible, he said, that the moderation in demand could allow a relaxation in the labor market and a reduction in inflation “without a significant loss of employment.”