Data released on Thursday showed the US economy grew at a 2.9% annualized rate during the fourth quarter, above the 2.6% of market consensus. Analysts at Wells Fargo point out the outturn represents the second consecutive quarter of above-trend GDP growth. However, they warn that while the economy came into the fourth quarter with solid momentum, it ended the quarter with a distinct loss of momentum.
Underlying components of the Q4 GDP data were not quite as impressive
“The outturn was a bit stronger than the consensus expectation of 2.6% growth, and it represents only a modest downshift from the 3.2% growth rate that was registered in the third quarter. To put the GDP growth rates of the last two quarters of 2022 into perspective, consider that U.S. real GDP growth averaged 2.3% per annum during the economic expansion of 2010-2019. In short, the U.S. economy grew at an above-trend rate in the second half of last year.”
“This loss of momentum at the end of the fourth quarter means that the solid growth rates that the U.S. economy posted in the second half of 2022 likely will not be repeated in the first quarter. Indeed, we currently forecast that real GDP will be more or less flat in Q1-2023 on a sequential basis.”
“Strength in the labor market is a sound fundamental for the outlook for consumer spending, at least in the near term. But further monetary tightening by the Federal Reserve—we look for the FOMC to raise rates by a combined amount of 75 bps at the next three policy meetings—will exert further headwinds on the economy.”
“We forecast the economy will slip into a modest recession around mid-year.”
