Economic news summary 2023: the year of ignored expectations!!!
Economists and investors will remember the year 2023 as 365 days of resiliency and defied expectations. This week’s Weekly Economics will dive into the U.S. economic landscape and summarize the major factors that shaped the nation’s economic trajectory this year.
Economic growth:
The preliminary release of the 4Q23 GDP growth won’t be released until the end of January. Still, the U.S. economy likely experienced another strong quarter, pushing GDP for the whole year north of 2.4%. It’s not too bad for an economy that entered the year with Bloomberg Economics’ model giving it a 100% chance of a recession in 20231. Historically great predictors of recessions like the Leading Economic Index, which has been declining for 19 consecutive months, and a severely inverted yield curve, also failed to predict a recession in 2023 correctly. How is that possible? The resiliency of the U.S. economy in 2023 can be largely attributed to several tailwinds:
- Strong consumer spending boosted by accumulated pandemic excess savings and an incredibly robust labor market.
- U.S. households that ‘sat pretty’ in terms of debt as a percentage of disposable personal income as well as its debt service ratio compared to previous cycles, as this past cycle was a fiscal cycle rather than a monetary cycle in which households borrow too much and then they get in trouble.
- Government initiatives like the Inflation Reduction Act, the CHIPS Act, and the Infrastructure Bill have supported nonresidential investments, keeping this component of the U.S. economy afloat even at such high-interest rates.
Federal Reserve:
The Federal Reserve (Fed) continued its hawkish journey to battle inflation throughout the year, increasing the federal funds rate by an additional 100 basis points (bps) of hikes to add to 2022’s massive 425 bps increase. Finally, during the last FOMC meeting of 2023, the Fed shifted to a more dovish tone, projecting rate cuts in 2024.
Inflation:
Inflation remained a major concern for the year but cooled significantly from the June highs of 8.9% in 2022 to around 3%. Inflationary pressures should continue to normalize as lagging components of the Consumer Price Index such as a shelter are starting to be reflected in the inflation data. Although the inflation numbers are very positive, the Fed will probably have to fight markets’ expectations of more rate cuts than Fed officials are forecasting.
Thank you for reading Economic News Summary 2023 here
source: www.raymondjames.com
