U.S economy sees Q4 growth, but experts predict recession

Economists will closely examine Thursday’s report on the U.S. gross domestic product for indications of the consumer’s strength or weakness during the fourth quarter of 2022. Indications from retail sales suggest that spending significantly decreased as the year came to a close.

Economists predict that the U.S. gross domestic product expanded by 2.8% during the fourth quarter, a decrease from the 3.2% growth rate in the previous quarter, according to Dow Jones. Despite the positive outlook for the fourth quarter, opinions are divided on the future of the economy, with the consumer playing a crucial role.

Some argue that the steep 1.1% decline in December retail sales indicates that consumers have backed away at the end of the quarter, signaling a potential recession. Conversely, others believe it is too early to dismiss the consumer and that the economy may still avoid contraction.

According to Kevin Cummins, the NatWest chief U.S. economist, a recession is imminent and he predicts a 1% decrease in GDP for the first quarter, following an estimated 3.2% increase in the fourth quarter.

He explains that the Federal Reserve’s interest rate increases have a delayed impact on the economy and have already caused a recession in the housing market. The decrease in residential investment has also contributed to a reduction of 1% in growth during the fourth quarter, he states.

Cummins stated that the consumer remained robust in the initial stages of the fourth quarter, but the pace has significantly decreased since then. He added that there seems to be a significant gap to fill where the fourth quarter ended, resulting in a weak start to the first quarter.

KPMG’s chief economist Diane Swonk echoed these sentiments, explaining that consumer spending slowed and the economy’s momentum decreased towards the end of the fourth quarter. She predicts a mild recession in the upcoming year.