Thursday's GDP report expected to show the U.S. economy at a crossroads

Consumers store in Rosemead, California, on Dec. 12, 2023.

Frederic J. Brown | Afp | Getty Images

Economic progress doubtless slowed to its weakest tempo in a 12 months and a half to finish 2023, presumably setting the stage for a extra pronounced slowdown forward, in accordance to Wall Street economists.

The consensus outlook for the fourth quarter is that gross home product grew at a 2% seasonally adjusted annualized tempo, sliding downward from the 4.9% in Q3 and the lowest studying since the 0.6% decline in the second quarter of 2022.

As the U.S. Department of Commerce’s report hits Thursday morning, Wall Street’s consideration nearly instantly will flip to what the indicators are for progress going into 2024.

The report doubtless will “symbolize a sharp deceleration” from the earlier interval, Bank of America economist Shruti Mishra mentioned in a consumer notice. “Incoming knowledge proceed to level to a resilient, however cooling, U.S. economy, led by client spending on the again of a tight labor market, increased than expected vacation spending, and reasonably sturdy steadiness sheets.”

BofA has a below-consensus view that GDP — the sum of all items and providers produced throughout the interval — will gradual to a 1.5% tempo, largely as a result of elements of the economy circuitously associated to client spending, resembling nonresidential enterprise mounted funding and housing, will tail off.

In addition, the financial institution expects a slowdown in stock restocking to shave shut to a full proportion level off the headline quantity.

Looking ahead, BofA forecasts the first quarter of 2024 to show progress of simply 1%.

“Consumer spending is probably going to gradual from its present tempo due to lagged results from tighter monetary circumstances, increased power costs, and cooling labor market,” Mishra mentioned.

Elsewhere on Wall Street, expectations are combined.

Goldman Sachs earlier this week lifted its This fall estimate to 2.1%, a rise of 0.3 proportion factors, taking its full-year GDP outlook to 2.8%. One important issue Goldman sees is stronger-than-expected state and native authorities spending, which boosted Q3 progress by practically a full proportion level and is predicted to show a 4.5% improve in the remaining three months of the 12 months.

The financial institution’s economists additionally see progress holding up pretty effectively in 2024, ending the 12 months at 2.1%.

Two different key parts will take the focus as buyers digest the GDP report: the state of consumer spending, which accounted for about two-thirds of all exercise in Q3, and inflation, particularly how the Federal Reserve might react to private consumption costs that come out of Thursday’s report in addition to a separate Commerce Department launch Friday.

“We do count on the economy to gradual … additional in 2024 as the influence of financial tightening continues to weigh on financial actions,” mentioned Joseph Brusuelas, chief economist at tax consultancy RSM. “However, we don’t count on the economy to hit a recession.”

RSM expects the GDP report to show a 2.4% acquire on strong progress in client spending, although some economists say December’s larger-than-expected retail sales increase was fueled by seasonal distortions in the knowledge that can be corrected in January.

Citigroup agrees with the consensus name of two% progress in This fall however sees more durable occasions forward, primarily due to the lagged impact the Fed’s earlier charge cuts will exert, in addition to inflation that might prove to be extra sturdy than anticipated.

“Data launched [Thursday] could on reflection prove to doc the one quarter of true ‘Goldilocks’ circumstances,” Citi economist Andrew Hollenhorst wrote. “But we don’t share the market and Fed’s sanguine evaluation of the macroeconomy over the the rest of the 12 months.”

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