Home » The U.S. economy doesn’t look as good as GDP suggests

The U.S. economy doesn’t look as good as GDP suggests

The U.S. economy grew at a seemingly snappy pace in the waning months of 2022, but it appears to have gotten off to a tepid start in the new year.

The first batch of reports on the health of the economy in the first quarter suggests the U.S. could even contract again. Gross domestic product, the official scorecard of sorts, also shrank in the first two quarters of 2022 before rebounding in the second half of last year.

Economists who work at the nation’s largest banks see trouble ahead. They forecast GDP will be flat in the first quarter and shrink in the second quarter.

S&P Global, one of the premier Wall Street DJIA, +0.08% forecasters, said the economy tailed off at the very end of last year and is on a “downward trajectory.”

The firm forecasts a 1.9% decline in GDP in the first quarter, but there are more than two months to go and a lot can change in that time.

The gloomier forecasts stand in stark contrast to a seemingly robust 2.9% annual increase in growth in the 2022 fourth quarter, but as is often the case, the report wasn’t as good as it looked.

For one thing, a large increase in inventories, or unsold goods, generated about half of the growth in GDP in the fourth quarter.

Businesses are likely to reduce production in the first quarter owing to a softer economy. And they have too much inventory on hand after a slowdown in sales.

A falling international trade deficit and higher government spending, meanwhile, also padded GDP in the fourth quarter. Neither is expected to contribute much in the early months of 2023.

Even consumer and business spending wasn’t as strong as it looked. Sales of goods and services to domestic buyers rose a scant 0.2% in the fourth quarter, down from a 1.1% gain in the fall.

What’s more, most of the increase in consumer spending occurred in October, but households cut back in the final two months of the year.

“Looking to first-quarter GDP data, the momentum in the numbers isn’t looking great,” said  James Knightley, ING’s chief international economist. “We need to see a turn quickly in something to prevent first-quarter GDP turning negative.”

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