Notes

After a huge year for growth, the U.S. economy is about to slam into a wall
Spurred by a massive inventory rebuild and consumers flush with cash, the U.S. economy last year grew at its fastest pace since 1984.

Don’t expect a repeat performance in 2022.

In fact, the year is starting with little growth signs at all as the late-year spread of omicron coupled with the ebbing tailwind of fiscal stimulus has economists across Wall Street knocking down their forecasts for gross domestic product.

Combine that with a Federal Reserve that has pivoted from the easiest policy in its history to hawkish inflation-fighters, and the picture has suddenly changed substantially. The Atlanta Fed’s GDPNow gauge is currently tracking a first-quarter GDP gain of just 0.1%.

“The economy is decelerating and downshifting,” said Joseph LaVorgna, chief economist for the Americas at Natixis and former chief economist for the National Economic Council under then-President Donald Trump. “It’s not a recession, but it will be if the Fed tries to get too aggressive.”

GDP surged at an impressive 6.9% in the fourth quarter of 2021 to close out a year in which the measure of all goods and services produced in the U.S. increased 5.7% on an annualized basis. That came after a pandemic-induced 3.4% decline in 2020, a year that saw the steepest but shortest recession in U.S. history.

But the path ahead is less certain.

Much of that end-of-year gain was fueled by an inventory rebuild that contributed fully 4.9 percentage points, or 71% of the total. Inventories were responsible for almost all of the third quarter’s 2.3% GDP increase.

At the same time, Tuesday’s ISM Manufacturing survey showed that the pace of new orders, while still showing gains, is slowing substantially.

Taken together, that economy news s not much of a recipe for sustained growth.

“Inventories are roughly back to where they should be,” said Mark Zandi, chief economist at Moody’s Analytics. “Then you’ve got growing headwinds from fiscal and monetary policy. So, yeah, growth starting the year will be very soft.”

Economists playing catchup
Wall Street economists have been marking down their growth projections quickly.

Goldman Sachs slashed 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. “Q1 growth is likely to be particularly soft because the fiscal drag will be accompanied by a hit from Omicron.”
Homepage: https://financialrepots.com/economy-news/