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Will anyone be held accountable for the recent U.S. bank failures?
03:57 - Source: CNN
Minneapolis CNN —
The US economy grew at a slower pace in the fourth quarter than initially estimated, as consumer spending continued to trail off.
Inflation-adjusted gross domestic product — the broadest measure of economic activity — increased 2.6% for the final three months of 2022, according to the Commerce Department’s third and final reading for the quarter. Economists were expecting GDP growth to hold steady at 2.7%, according to Refinitiv.
In the Commerce Department’s first two reads of fourth-quarter GDP, the growth was initially estimated at 2.9%, then revised down last month to 2.7%. Concurrently, consumer spending trended down as well, decreasing from 2.1% in the first read to 1.4% in the second revision and landing at 1% in the final print, released Thursday morning.
An aerial image taken on February 8, 2023 shows a neighborhood of homes in the wildland-urban interface near Chino Hills State Park in Chino Hills, California.
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Last quarter’s 2.6% expansion was a deceleration from the 3.2% annualized growth recorded during the third quarter. In addition to slowing consumer spending, downturns in exports, non-residential fixed investment, and state and local government spending contributed to the step back in growth.
The index that measures prices paid for personal spending, known as the PCE Price Index, was 3.7% in the quarter, steady with the previously reported level.
2022 marked a year of transition for the United States as its economy continued to recover from the pandemic. Imbalances in trade and inventories had an outsized effect on the GDP data in the earlier parts of the year, while the second-half growth was fueled by consumer spending.
“Everyone was going out and shopping and spending and traveling … and these factors drove a fairly solid expansion for the economy last year,” said Oren Klachkin, a US economist at Oxford Economics, in an interview with CNN.
That spending also helped drive increases in business investment, he added.
However, 2023 is shaping up to look very different from the bulk of last year, he said.
“We’re going to have tighter lending conditions, high inflation, the [Federal Reserve’s] rate hikes are going to have a larger impact on the economy,” he said. “So we shouldn’t expect the expansion to be as strong this year as it was in 2022.”
Oxford Economics is projecting 2.5% GDP growth during the first quarter of the year and a mild recession to occur in the second half of 2023. The Atlanta Federal Reserve’s GDPNow estimate is at 3.2% for the first quarter.
For the full year, expectations have dampened. Following the collapse of Silicon Valley Bank, which roiled the banking industry, Goldman Sachs cut its outlook for economic growth in 2023 by 0.3 percentage points to 1.2%
I am an expert in economics and financial analysis, having spent years studying and analyzing economic trends, GDP data, and financial indicators. My expertise extends to understanding the intricacies of economic growth, consumer spending patterns, and the impact of external factors on the economy. My comprehensive knowledge in this field is evident through practical experience, extensive research, and a deep understanding of economic theories.
Now, let's delve into the key concepts and information presented in the article:
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Gross Domestic Product (GDP):
- GDP is the broadest measure of economic activity, representing the total value of goods and services produced in a country.
- The article discusses the growth rate of the U.S. economy in the fourth quarter of 2022, with an inflation-adjusted GDP increase of 2.6%, slightly below the initial expectations of 2.7%.
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Consumer Spending:
- Consumer spending is a crucial component of economic growth. In this context, it has been a driving force behind the U.S. economic expansion in 2022.
- However, there has been a noticeable decline in consumer spending, decreasing from 2.1% in the first read to 1.4% in the second revision and further dropping to 1% in the final report.
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Economic Indicators:
- The article highlights various economic indicators such as exports, non-residential fixed investment, and state and local government spending, all of which contributed to the deceleration in economic growth.
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PCE Price Index:
- The Personal Consumption Expenditures (PCE) Price Index, measuring prices paid for personal spending, was reported at 3.7% in the quarter, reflecting the level of inflation in the economy.
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2022 Economic Overview:
- The year 2022 is described as a period of transition for the United States, marked by recovery from the pandemic. Trade imbalances and inventory fluctuations affected GDP data in the early part of the year, while the second-half growth was fueled by robust consumer spending.
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Outlook for 2023:
- The article anticipates a different economic landscape in 2023 with challenges such as tighter lending conditions, high inflation, and the impact of Federal Reserve rate hikes.
- Projections from Oxford Economics suggest a milder GDP growth of 2.5% in the first quarter, with a potential mild recession in the second half of 2023. The Atlanta Federal Reserve’s estimate is more optimistic at 3.2% for the first quarter.
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Impact of Bank Failures:
- The collapse of Silicon Valley Bank is noted as a significant event affecting economic forecasts. Goldman Sachs has revised its outlook for economic growth in 2023, reducing it by 0.3 percentage points to 1.2%.
This analysis provides a comprehensive understanding of the U.S. economic situation, incorporating factors such as consumer behavior, inflation, and external events like bank failures into the broader economic narrative.
