Americans who expect the US economy to continue its roaring ways last year should think again. The factors that help the US post its fastest economic growth rate for nearly 40 years are gone.
2021 Was a Miracle Year for the US Economy
2021 proved a great year for the US economy. However, the successful 5.7% growth rate it posted got help from a few factors. First, American households received a windfall in the form of economic stimulus.
This gave them unprecedented spending power for the next few months. The last batch of stimulus aid came in 2021. Even as stimulus money evaporated, many federal aid programs remained active.
The second factor was a massive inventory rebuild that spurred US manufacturers to produce record outputs. In addition, the country’s near zero interest rate levels makes borrowing less burdensome. All these combined to fuel the US economy into posting its record growth rates.
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This Year, It’s Different
In 2022, almost everything is in reverse. Little to no growth signs are showing. The effects of the late Omicron surge, plus the withering of fiscal stimulus suggest little growth.
As a result, many Wall Street economists are hastily pulling down their Gross Domestic Product forecasts. At the same time, the US Federal Reserve is slowly pivoting its policies from dovish to hawkish.
From easy monetary policies, near zero interest rates, and massive bond purchase sprees, the Fed is shifting gears. It now wants to raise interest rates and tighten its monetary supply. All in the hope of bringing down record inflation levels set last year.
US Economy Will Post Zero or Near Zero Growth In the First Quarter
As a result, optimism about US economic growth is down across the board. The Atlanta Fed’s GDPNow gauge expects a first-quarter GDP gain of just 0.1%.
Meanwhile, Goldman Sachs reduced its outlook from 2% to 0.5%. The bank also slashed its full-year expectation to 3.2%, well below the 3.8% consensus.
Likewise, Bank of America also cut its expectations from 4% to 1%. From a 4% full-year forecast, it went down to 3.6%.
For Bank of America global economics research head Ethan Harris, there are four reasons. They are omicron, the retreat in inventory build, less fiscal support, and a tighter Fed as well.
According to Goldman economist Ronnie Walker, don’t expect too much action this year. Growth will likely slow abruptly in 2022 as fiscal support disappears.
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In the near term, the spread of COVID will begin to affect services spending. It will also extend supply chain issues. “Q1 growth is likely to be particularly soft because the fiscal drag will be accompanied by a hit from Omicron.”
Uncertain Paths Ahead
For this year, the US economy is off to a rocky start. Tuesday’s ISM Manufacturing survey showed that the pace of new orders, despite staying high, is now slowing substantially.
“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.”
Watch the Steven Van Metre video reporting that the US is on the Brink of a Recession:
What do you think of the apparent slowdown of the US economy? Was this something that’s fully preventable given the correct course of action?
Let us know what you think. Share your comments below.