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US Economy: January-March Growth Slowed, What Now?

by Joshua Brown
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At the end of last year, the United States was still doing strong, even though there were lots of financial troubles elsewhere. However, this year doesn’t look so great. Most economists think our economy might go down and we may suffer a recession sometime this year.

We might start to see the first signs of economic growth for 2023 on Thursday when the Commerce Department releases their report about how well the economy did in the first three months of this year.

Experts say that the economy has not been doing as well in the first three months of this year compared to how it was doing from July through September and from October through December. They estimate that the economy grew at a speed of 1.9% in that time, which is a slower rate than what we saw these last two quarters.

The problems in the economy are getting harder. The biggest one is that it’s more expensive to borrow money now. In order to decrease the high inflation rate from last year, the Federal Reserve has raised a special number – called the benchmark rate – 9 times in just over 12 months.

As the prices of borrowing get higher, it becomes more and more expensive for people to borrow money for things like buying a new house, car or expanding a business. This makes these items really hard to afford.

The Federal Reserve has been putting up interest rates with the goal of slowing down economic growth in order to control inflation. However, most economists don’t believe that this will work. A research company called The Conference Board did a study that said there’s about a 99% chance that America will go into a recession within the next year.

The chances of a recession were really low during the period from September 2020 and March 2022 because the economy was doing well. Then the Fed (the Federal Reserve which affects how money works in America) started raising interest rates to stop prices from getting too expensive. This has made it harder for people to buy homes as they need mortgages, or long-term loans. Because of this, investments into buying houses have gone down 27% from July-September and 25% from October-December.

The things that people buy, which make up about 70% of the US economy, are starting to decrease. To begin this year, retail sales were doing great because it was a lot warmer than expected and people had more money in Social Security checks. But February and March saw this dip in what people bought. Gregory Daco, an economist at EY consulting firm said “right now, the US economy isn’t healthy and we can see this”.

Last month, the banking sector in United States faced a lot of trouble. Two big banks called Silicon Valley Bank and Signature Bank had to be shut down because people took out their money from these banks. Because of this, many other banks are now reducing the amount they lend out as they want to keep some extra money in case something like this happens again.

The big fear of a financial crisis like the one that happened in 2008 is not as bad any more. But many banks are still cutting down on lending money, which will make it hard for the economy to grow.

An expert named Tony Roth from Wilmington Trust said he thinks the U.S. has about a 55-60% chance of having a mild recession. He explained that credit is getting stricter, and this increases the chances of going into a small recession.

Some Representatives in Congress from the Republican party are putting pressure on Democrats and President Joe Biden. They are saying they won’t increase the government’s allowance to borrow money unless there is agreement on reducing what the government should spend.If this happens, it will be the first time that ever happened and it could cause a really big financial disaster across the world.

The situation around the world is not looking very good. The International Monetary Fund recently shifted its prediction about how much the global economy will grow this year and said it would be lower than expected. They mentioned that higher interest rates, a shaky financial market, and steadily increasing prices are all contributing factors to this downgrade in growth. U.S companies that sell products out of the country could struggle as a result of these changes.

Earlier in 2022, people were worried about the economy going into a recession because it had been shrinking for two quarters. Fortunately, things got better! In the second half of 2022, spending money kept increasing and the economy improved again.

More people have been able to find jobs than ever before. This extra money has made people feel more confident and they continue to spend on things. 2021 and 2022 had the most jobs created in history. Even this year, there are many job openings but fewer when compared to January and February.

On May 5th, the government is going to announce the April jobs report. According to a survey of experts done by FactSet, it’s assumed that employers have added 185,000 jobs in April. That number is still lower than expected.

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