The slowdown in the second quarter reflects changes in consumer and business behaviour. Retailers bought fewer goods, including cars, as consumers shifted their spending from goods to services such as restaurants and hotels. Decline in housing investment and government spending also contributed to the negative reading.
Meanwhile, inflation is at a 40-year high for several months, home sales are weakening and even the red-hot labor market is beginning to show cracks. Widespread concerns about the war in Ukraine, the global financial outlook and aggressive interest rate hikes have prompted many economists to predict a recession next year.
“Right now the numbers are staggering — we don’t see GDP decline and growing employment in general,” said Betsy Stevenson, a professor of economics at the University of Michigan and research associate at the National Bureau of Economic Research. “Employment is still rising. Consumer spending hasn’t been impacted much. Families tend to have stronger balance sheets than usual. Even with a negative number in the second quarter, to find out There’s going to be some serious thought about whether it’s really enough to say we’re in a recession.”
The US economy unexpectedly slowed at an annualized rate of 1.6 percent in the first three months of the year, largely due to a mismatch in trade — with the United States importing far more than it exports — and a decline in inventory purchases by businesses. were still filled with leftovers from the holidays.
Some signs of a slowdown in economic growth are, by design, due to interest rate hikes aimed at cooling the economy. Federal Reserve again increased interest rates On Wednesday, this time by three-quarters of a percentage point – an unusually aggressive growth – in hopes of curbing inflation, which stood at 9.1 per cent in the previous year.
The Fed’s interest rate hikes that began in March are already beginning to cool demand in some parts of the economy. On Wednesday, Fed Chair Jerome H. Powell pointed to a number of data points — including slowing consumer spending growth, weak housing demand and low business investment — as signs that central bank efforts are working.
But, he said, it is becoming increasingly difficult to calm the economy without sending it into a tailspin.
“Our goal is to bring down inflation and have a so-called soft landing, by which I mean a landing that doesn’t require a significant increase in unemployment,” Powell said at a news conference on Wednesday. “We understand it’s going to be quite challenging. It’s gotten more challenging in recent months.”
Still, most economists expect the US economy to end the year with growth – albeit at a much slower pace than last year’s growth of 5.7 percent. Lydia Boussour, chief American economist at Oxford Economics For example, economic growth is expected to slow to 1.9 percent this year and to 1.1 percent in 2023.
“We are expecting the economy to slow down quite rapidly,” she said. “The important question is: what happens in the second half of the year and where does that leave the economy?”
The White House has pushed back against concerns that the economy could slow, with senior officials pointing to a strong labor market and saying the recovery is on track.
“My hope is that as we move from this rapid growth to steady growth, so we will see some of that coming down,” President Biden said Monday after a virtual meeting on semiconductor chips. “But… God willing, I don’t think we’re going to see a recession.”
Businesses and families already struggling to cope with rising prices say rising economic uncertainty has made long-term planning difficult. Some families are putting off big-ticket purchases, while employers say they are rethinking hiring plans and are ready for a massive reduction in spending.
Walmart this week lowered its profit expectations for the year, causing its stock price to drop nearly 9 percent. The country’s largest retailer, which is considered a bellwether for the industry, said it would have to mark down products more heavily than expected because high gas and grocery costs forced many consumers to rethink buying patterns. Still working.
Meanwhile, General Motors reported a 40 percent drop in quarterly profits and announced plans to curb hiring. Other major employers — including Ford Motor, 7-Eleven and Shopify — are moving even further, announcing hundreds, even thousands, of layoffs.
Mark Beneke, who owns a used car dealership in Fresno, Calif., is starting to see worrying signs in the economy: Demand for cars is starting to slow, and auto loan delinquencies and repossession are on the rise.
But he says that he is not panic yet. Beneke is still hiring new employees, though he says he could cut his marketing budget and start buying fewer cars — perhaps 12 a week instead of 15 — if the slowdown continues.
“We are being cautious, but not necessarily afraid to the point where we are in the cold,” said Beneke of Westland Auto Sales. “Things don’t seem too worrisome yet.”