The US economic growth in the fourth quarter of 2022 was lower than expected. Inflation-adjusted gross domestic product (GDP) increased by 2.7% annually, below the 2.9% level in previous reports. This was attributed to a decrease in consumer spending, which accounts for over two-thirds of US economic activity, which increased by only 1.7% in the fourth quarter. Supply chain disruptions and labor shortages that affect various sectors such as production, transportation, and accommodation are some of the factors that have slowed growth.
Despite the weaker fourth-quarter growth, the US economy expanded strongly in 2022, recording a growth rate of 5.7%, the highest annual growth rate since 1984. However, the report also shows that the personal consumption expenditures (PCE) price index, the inflation measure preferred by the Federal Reserve, reached its highest level since 1982 with an annual increase of 5.4%. This highlights concerns about increasing inflation pressures and their potential impact on the US economy and monetary policy.
The details of the published report indicate an economy that lost momentum towards the end of 2022. Domestic private purchases, trade, government spending, and inventories adjusted for inflation increased by only 0.1%, which is the weakest figure since the beginning of the pandemic. The rapid decline in consumer spending raised concerns about the situation of US consumers but also increased hopes that the economy was slowing down in a “soft landing.”
Increase in Inflation Did Not Match Unemployment Expectations
Unexpectedly, unemployment claims in the US fell to their lowest level in four weeks, indicating a strong job market. Initial unemployment claims fell by 3,000 from the previous week to 192,000, below the expected 200,000. Additionally, continued claims for people who have been receiving unemployment benefits for more than a week fell by the largest amount since December, down 37,000 to 1.65 million.
What Is The Affect of Unemployment Rate to the US Economy
A low unemployment rate may have positive effects on the economy such as increased consumer spending and business investment due to people having a more stable income. However, an excessively low unemployment rate can lead to a labor shortage, which can increase wages and inflation. Policymakers are concerned about the strength of the labor market because it contributes to high inflation, which is a significant problem for the Federal Reserve.
Overall, the labor market has become tighter thanks to many measures such as job creation, low unemployment rates, and many job postings. Policymakers are closely monitoring the unemployment rate and taking steps to maintain a healthy balance between job growth and inflation in the economy. On the other hand, the latest data show the lowest unemployment rate in 53 years.
