The United States economy expanded at a 2.7 percent annual rate from October through December 2022, a solid showing despite rising interest rates and elevated inflation, the government said Thursday in a downgrade from its initial estimate.
The government had previously estimated that the economy grew at a 2.9 percent annual rate last quarter.
The US Department of Commerce’s revised estimate of the fourth quarter’s gross domestic product (GDP) — the economy’s total output of goods and services — marked a deceleration from the 3.2 percent growth rate from July through September.
Thursday’s report revised down the government’s estimate of consumer spending growth in the October-December quarter, from a 2.1 percent rate to 1.4 percent. That was the weakest such showing since the first quarter of last year.
Business spending also slowed in the fourth quarter, suggesting that the economy lost momentum at the end of 2022.
Some of the surprisingly strong economic gains in January likely reflected much warmer-than-usual weather. Few economists expect similar outsize gains in hiring or spending in the coming months. Most analysts think growth is slowing to a roughly 2 percent annual rate in the current January-March quarter.
Higher interest rates
“The year as a whole was weak and the economy is sure to have a difficult 2023 as it struggles under the weight of the interest rate increases orchestrated by the Federal Reserve to quell the painfully high inflation,” warned Scott Hoyt, senior director of analytics at ratings agency Moody’s.
And the Federal Reserve is expected to keep raising its benchmark interest rate over the next few months and to keep it at a peak through year’s end to try to defeat still-high inflation. The minutes from its last policy meeting, released Wednesday, showed that all 19 Fed officials favoured raising rates at the next two meetings.
“From the Fed’s perspective, a slowdown in the economy is anticipated and will be welcome news,” said Rubeela Farooqi, chief US economist at High Frequency Economics, a consulting firm. “However, even as growth slows, a focus on lowering elevated inflation means rates will move up further and will remain higher for longer.”
Higher borrowing costs make mortgages, auto loans and credit card borrowing more expensive. Those higher rates could discourage consumers and businesses from spending, hiring and investing and could eventually push the economy into a recession.
The economy’s growth at the end of 2022 reflected mainly a restocking of inventories, which will likely unwind in coming quarters, and a pickup in government spending. Housing investment fell nearly 26 percent; higher borrowing rates have crushed homebuying.
Inflation, measured year over year, has cooled since it reached 9.1 percent in June, having slowed to 6.4 percent in January. Yet on a monthly basis, price gains accelerated from December to January, raising the prospect that the Fed will boost its benchmark rate higher than it has previously signalled.
In Thursday’s GDP report, the government also sharply revised up its estimates of Americans’ incomes in the fourth quarter. After-tax income, adjusted for inflation, jumped 4.8 percent, a much larger gain than the previous 3.3 percent estimate.
The upward revisions reflected higher wages and salaries than were estimated earlier, and state stimulus payments that were intended to offset inflated costs of petrol, food and other necessities. Twenty-one states, including California, Colorado, Florida, New York, Idaho and Pennsylvania, issued one-time payments last year, typically in the form of tax refunds.
The boost in incomes could continue to support consumer spending this year and might have helped drive retail sales up in January. If so, stronger consumer spending could force the Fed to continue raising rates or keep them elevated for longer to cool the economy and quell inflation.
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
OTTAWA – Finance Minister Chrystia Freeland says the government is making some changes to mortgage rules to help more Canadians to purchase their first home.
She says the changes will come into force in December and better reflect the housing market.
The price cap for insured mortgages will be boosted for the first time since 2012, moving to $1.5 million from $1 million, to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
On Aug. 1 eligibility for the 30-year amortization was changed to include first-time buyers purchasing a newly-built home.
Justice Minister Arif Virani is also releasing drafts for a bill of rights for renters as well as one for homebuyers, both of which the government promised five months ago.
Virani says the government intends to work with provinces to prevent practices like renovictions, where landowners evict tenants and make minimal renovations and then seek higher rents.
The government touts today’s announced measures as the “boldest mortgage reforms in decades,” and it comes after a year of criticism over high housing costs.
The Liberals have been slumping in the polls for months, including among younger adults who say not being able to afford a house is one of their key concerns.
This report by The Canadian Press was first published Sept. 16, 2024.
OTTAWA – Statistics Canada says manufacturing sales rose 1.4 per cent to $71 billion in July, helped by higher sales in the petroleum and coal and chemical product subsectors.
The increase followed a 1.7 per cent decrease in June.
The agency says sales in the petroleum and coal product subsector gained 6.7 per cent to total $8.6 billion in July as most refineries sold more, helped by higher prices and demand.
Chemical product sales rose 5.3 per cent to $5.6 billion in July, boosted by increased sales of pharmaceutical and medicine products.
Sales of wood products fell 4.8 per cent for the month to $2.9 billion, the lowest level since May 2023.
In constant dollar terms, overall manufacturing sales rose 0.9 per cent in July.
This report by The Canadian Press was first published Sept. 16, 2024.
