The GDP numbers for the third quarter of 2022 recently came out, showing growth of 0.6%. After two consecutive quarters of GDP decline in the first half of 2022, it appears that GDP is finally making an upturn. By simple definition, two consecutive quarters of negative GDP growth means that the economy is in a recession. This means that (once again by simple definition) this past quarter has brought us out of a a very short-lived recession. However, many economists believe it's more complicated than this.
One of the main reasons for this growth in GDP is a continuous increase of consumer spending (one of the main determinants of GDP). However, economists believe that this increase in consumer spending will soon catch up with consumers. Consumer spending has been on the up and up because consumers are continuing to spend the money they saved during the pandemic so they could do all the vacationing, eating out and other activities that the pandemic prevented consumers from doing. Consumers are going all out in spending on these activities, as a matter of fact, savings the past few quarters has been way down. This most likely means that the mass consumer spending will come to a sudden halt when consumers run out of savings to fund these ventures. The recent inflation will only expedite the draining of consumer funds. So it's speculated that this very small GDP growth will lead back into quarters of negative growth in the near future. It's only a matter of time.
Source: https://www.nytimes.com/2022/10/27/business/economy/us-economy-gdp.html
Hello Kory,
ReplyDeleteWe have seen GDP increase from the second quarter to the third quarter however, I am not sure how accurate that trend is. For starters many economists believe that the federal reserve is likely to again rase Interest rates .75 points in the month of November. They have proved that they are going to do everything they can to fight the inflation rate of 8.2%. With yet another increase in the interest rates we will see an increase in savings and a decrease in consumer spending. This is where GDP becomes tricky to predict, because yes it may be up from last quarter but we can expect with a higher interest rate that spending will decrease overall GDP. Additionally, I am concerned for the economy if the recession that we went through is publicly announced because when people believe that we are in bad times than people treat it as such. We may see an additional increase in savings based on that factor alone and on top of what we may see from an increase in the interest rates. Overall, good insights. Good job!
With spending on the increase since the pandemic, do you think this has created a new expectation for consumers? People have adapted to a more at home work-life, ordering online, and maybe even comfortable lifestyle. Do you think after so much time and funds to spend doing what people want to do that we will return to the way we were before (going into work, working longer hours) or do you think people will be hesitant to return to their old lifestyle. If people do not want to return to their old work lifestyles, will this impact the economy (even if people are working from home?)
ReplyDeleteThis growth in GDP does not come as a surprise to me. The article I chose to write about discusses how the manufacturing sector has grown over the past year, which has probably somewhat contributed to this growth in GDP. It also mentions that the growth in our economy at the moment is being overshadowed by inflation and fears of recession.
ReplyDelete