JTFMax-
The U.S. economy is projected to hit a brick wall in 2022 as new businesses begin to fail and consumers continue to spend less. However, the U.S. economy improves, with unemployment down to 4.2%, and the labor market is improving. Moreover, the "bio-revolution" could create new methods of production that account for 60 percent of the physical inputs to the global economy.
"The economy is decelerating and downshifting," the chief economist for the Americas at Natixis and ex-chief economist for the National Economic Council under former President Donald Trump, Joseph LaVorgna, told CNBC. "It's not a recession, but it will be if the Fed tries to get too aggressive," he said.
Statistics show that GDP surged by an impressive 6.9% in the fourth quarter of 2021, while the measure of all goods and services produced in the country grew 5.7% on an annualized basis.
Much of that end-of-year gain was fueled by an inventory rebuild that "contributed 4.9 percentage points to the total, led primarily by the auto sector," the chief international economist at ING, James Knightley, was quoted as saying by CNN. As a result, inventories were responsible for almost all of the third quarter's 2.3% GDP increase. "Given ongoing supply disruption, we can't count on this continuing to support growth in coming quarters," Knightley said.
U.S. Commerce Department data shows the nation's economy grew by 5.7% last year – its best performance since 1984 – as it roared back from the pandemic lockdowns. However, analysts expect the growth to slow this year as the government scales back stimulus spending and the Federal Reserve raises interest rates. Other risks include high inflation and threats from new Covid variants, including Omicron, they say.
Last month, the Bank of America cut its full-year growth forecast by 0.2 percentage points to 3.6% from 4%. It cited four reasons for its cut:
- A weaker global economy
- A weaker dollar
- Increased interest rates
- A slowdown in the European Union
As a result, the IMF's new growth forecast for 2022 is now four percent, down from 4.8 percent originally. While this is still better than the average growth rate throughout 2010 to 2019, it is not an uplifting sign.
Meanwhile, Goldman Sachs has trimmed its first-quarter GDP outlook to 0.5%, down from 2%. The bank also cut its full-year view to 3.2%, well below the current 3.8% consensus. Growth is likely to slow abruptly in 2022, as fiscal support fades and, in the near term, virus spread weighs on services spending and prolongs supply chain disruptions," Goldman economist Ronnie Walker said in a note for clients seen by CNBC. "Q1 growth is likely to be particularly soft because a hit from Omicron will accompany the fiscal drag."
This is a sign that the current economic growth rate is too high. However, this growth rate was caused by low economic output and massive fiscal stimulus, so it is noteworthy to recognize that the pace of economic growth is slowing. The rise in consumer spending has been remarkable, but businesses have been unable to keep up with the surge in demand. And global supply chains buckled under these restrictions.
Inflation is also a significant factor in the economy, and the Federal Reserve is facing a tighter supply of raw materials and finished goods. Increasing energy prices and rising Covid cases have already slowed down growth. Furthermore, a growing number of companies are adopting innovative techniques to circumvent the bottlenecks in the supply chain.
Nevertheless, the future remains uncertain, and it is not yet clear whether the U.S. economy will be able to recover from its current crisis.
In February 2020, the U.S. economy was on a solid footing. The recession had ended in 2014, and by 2020 the economy had been growing steadily. However, the COVID-19 pandemic, which had ravaged the population, led to the most recent decline in the U.S. During the Covid outbreak, the government implemented lockdowns and closed businesses. The result was a massive recession that was only halted by the rollout of vaccines.
Fortunately, the U.S. economy continued to grow in November. Despite the recent decline, it remains on track to expand by around three percent per quarter in 2022. The slowdown is likely due to several factors. First, inflationary pressures are still affecting the manufacturing sector. The U.S. government has said that the recession will worsen if consumers don't spend.
Share this page with your family and friends.