Monday, February 6, 2023

US growth expected to slow as downturn fears loom

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

Economic activity has been easing as the US central bank hiked the benchmark lending rate seven times last year, in hopes of cooling demand and reining in costs as inflation surged.

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

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

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

But the housing sector was likely a drag, with mortgage rates still high and weighing on affordability.

While unexpectedly resilient consumer spending has supported growth, there are signs that households are drawing down on their savings from the pandemic period.

This could point to more subdued expenditures ahead, analysts say.

“Recent economic data signal 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 may yet avoid a downturn.

Rubeela Farooqi of High Frequency Economics said that healthy household balance sheets along with a strong labor market could keep things positive this year.

“We’re still seeing wage growth that is way above the pre-pandemic trend… We’re not seeing a surge in jobless claims,” she told AFP.

“Companies are very reluctant to let go of workers because they’ve struggled so much in terms of staffing,” she added.

Despite announcements of layoffs from major companies, the fact that claims are not rising “means a lot of these people are finding jobs,” she said.

Moody’s Analytics economist Matt Colyar added that consumers’ excess savings act “as a firewall.”

Even if households are eating into their funds due to inflation, “they’re coming from a very high point,” and this should alleviate or prevent a protracted downturn, he said.

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

Despite job losses in the tech sector, retail giant Walmart, the biggest private employer in the US, said Tuesday it was raising its minimum wage, an indication of persistent tightness in the labor market.

Looking ahead, Federal Reserve Vice Chair Lael Brainard has warned that the drag on growth and employment from monetary policy is likely to rise in 2023 given that it takes time for policy changes to ripple through the economy.

It remains possible, she said, that moderating demand could allow for easing in the labor market and a reduction in inflation “without significant loss of employment.”

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