Free food is handed out by the Brooklyn community organization PASWO during a weekly food distribution on December 08, 2021 in New York City.
Spencer Platt | Getty Images
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’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.”
Likewise, Bank of America knocked down its first-quarter number to 1% from 4% and cut its full-year forecast to 3.6% from 4%, with risks to that forecast seemingly tilting to the downside.
Bank of America’s head of global economics research Ethan Harris cited four reasons for the downbeat outlook: omicron, the retreat in inventory build, less fiscal support, and a tighter Fed as well.
“We now expect a fiscal package about half the size of the Build Back Better Act, with less front-loaded fiscal stimulus. We think it will boost 2022 growth by just 15-20 [basis points], compared to our earlier estimate of 50bp,” Harris wrote. “Risks of a negative growth [first] quarter are significant, in our view.”
A basis point is 1/100th of a percentage point.
Bank of America has another wrinkle in its forecast: a call for seven 25-basis-point rate hikes this year. That’s considerably more aggressive than anywhere else on the Street, which is currently pricing in five hikes with about a 31% chance of a sixth, according to the CME.
Zandi said the Fed needs to be careful it doesn’t go too far in its fight against inflation, which is running at its highest rate in nearly 40 years.
“They run the risk of getting ahead of themselves and overdoing it. They have pivoted very hard here,” he said. “Market expectations are for five increases. Six is now entering into the debate and discussions. That feels like that could be a rate hike or two too far, given the growing headwinds in the economy.”
OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.
However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.
The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.
Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.
The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.
The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.
This report by The Canadian Press was first published Oct. 17, 2024.
OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.
In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.
The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.
Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.
In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.
It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.
This report by The Canadian Press was first published Oct 16, 2024.
OTTAWA – Statistics Canada says manufacturing sales in August fell to their lowest level since January 2022 as sales in the primary metal and petroleum and coal product subsectors fell.
The agency says manufacturing sales fell 1.3 per cent to $69.4 billion in August, after rising 1.1 per cent in July.
The drop came as sales in the primary metal subsector dropped 6.4 per cent to $5.3 billion in August, on lower prices and lower volumes.
Sales in the petroleum and coal product subsector fell 3.7 per cent to $7.8 billion in August on lower prices.
Meanwhile, sales of aerospace products and parts rose 7.3 per cent to $2.7 billion in August and wood product sales increased 3.8 per cent to $3.1 billion.
Overall manufacturing sales in constant dollars fell 0.8 per cent in August.
This report by The Canadian Press was first published Oct. 16, 2024.
