GDP report could show solid fourth-quarter growth but still signal a recession is coming

Economic maturation is expected to person slowed somewhat successful the 4th fourth but was inactive solid, driven by a beardown consumer.

Economists volition beryllium studying Thursday's study connected U.S. gross home merchandise cautiously for signs of however beardown oregon anemic the user really was astatine the extremity of 2022. Retail income suggest spending fell disconnected sharply arsenic the twelvemonth came to an end. GDP is reported astatine 8:30 a.m. ET.

According to Dow Jones, economists expect that U.S. gross home merchandise grew by 2.8% successful the 4th quarter, down from the 3.2% gait successful the 3rd quarter.

While economists spot a beardown 4th quarter, they are divided connected wherever the system goes from present and a cardinal is the consumer. Some accidental the crisp 1.1% driblet successful December retail sales shows the user pulled backmost astatine the extremity of the quarter, perchance a prelude to recession. However, others accidental it's excessively soon to number the user out, and the system could inactive debar a contraction.

"I cognize the consensus presumption is recession is imminent, but I'm skeptical of that," said Amherst Pierpont main economist Stephen Stanley. If determination is simply a recession, helium expects it would beryllium much apt successful 2024. "I deliberation we stumble done 2023."

But Kevin Cummins, NatWest main U.S. economist, said helium sees a recession connected the skyline and helium has penciled successful a 1% diminution successful first-quarter GDP, aft an estimated 3.2% summation successful the 4th quarter.

He said the Federal Reserve's complaint hikes person a lagged effect connected the economy, and they person already sent housing into a recession. The slowdown successful residential concern has taken a afloat percent constituent disconnected of maturation successful the 4th quarter, helium said.

"Real export maturation is going to beryllium weak. Inventories person been rebuilt capable that you're not going to get overmuch foodstuff from that," helium said. "It conscionable seems similar each the large components successful GDP are each connected the aforesaid broadside going forward, pointing to weaker growth."

Cummins said the user was inactive beardown successful the opening of the 4th quarter. "But the momentum since past has weakened beauteous noticeably," helium said. "It seems similar there's going to beryllium a beauteous large spread to excavation retired of wherever you ended the 4th quarter. So the archetypal 4th is going to commencement beauteous weak."

KPMG's main economist Diane Swonk said the user slowed and truthful did the momentum successful the system astatine the extremity of the 4th quarter. She expects a shallow recession this year.

"Fourth quarter-to-fourth 4th maturation is astir 0.8%. Year-over-year, it's astir 2%. We ended 2021 connected specified a beardown enactment aft astir 6% growth," she said. "Fourth quarter-to-fourth 4th is much astir momentum, and that slowed contempt the 4.5 cardinal paychecks we created."

The user powers two-thirds of the U.S. system truthful depletion is simply a large plaything origin successful GDP, which measures the worth of the last goods and services produced successful the U.S. economy.

Michael Gapen, Bank of America main U.S. economist, said helium has pushed backmost his presumption connected erstwhile a recession mightiness commencement to the 2nd quarter. He expects to spot a still-strong user successful the 4th quarter, adding that the diminution successful December retail income wasn't an close reflection of user spending, which whitethorn person been brought guardant successful the quarter.

"The awesome should beryllium depletion held up successful the quarter. The unfastened question is however overmuch did idiosyncratic spending slice into the extremity of the year. Was it conscionable a goods communicative oregon was it a services communicative too?" Gapen said. "That volition provender your communicative of whether the slowdown has broadened."

The Federal Reserve volition besides beryllium watching to spot however good the user is holding up erstwhile the cardinal slope meets adjacent week, Gapen said. He expects it to rise its fed funds people by different 4th point.

"We've been saying successful caller months that the slowdown should dispersed beyond lodging and into manufacturing. ... That awesome is clear, and it makes consciousness to me. The awesome astir depletion has inactive been beauteous good, and you can't get a recession until depletion rolls over," said Gapen. "That's wherefore we request to spot the creation of the information to spot momentum astatine year-end."

Stanley said helium thinks a recession volition beryllium enactment disconnected due to the fact that the user volition proceed to beryllium beardown and the employment outlook is good.

"I deliberation the system successful the abbreviated word proves much resilient. ... There's a large statement astir however overmuch of that cushion has been exhausted, but I deliberation households are inactive sitting connected a immense magnitude of liquid assets that they tin spend," Stanley said. "I bash not expect a recession this year. If we're going to get one, it's much apt to travel successful 2024, astatine which constituent households would person drawn down much of the pandemic cushion and you would person an extended play of a restrictive monetary policy."

Some marketplace strategists spot a beardown 4th fourth arsenic different motion the system could debar falling into recession, and a better-than-expected study could reenforce that view.

"I deliberation it truly starts to physique a lawsuit for a brushed landing, oregon if we person recession it's a milder recession than what radical were reasoning successful the past," said Jim Caron, caput of macro strategies for planetary fixed income astatine Morgan Stanley Investment Management.