Contributions to Percent Change in Real Gross Domestic Product – Annualized Rate (Source: Bureau of Economic Analysis) 2020 Q1 2020 Q2 2020 Q3 2020 Q4 GDP -4.6 -29.9 35.3 3.9
Personal Consumption
-4.25 -0.88 0.57 -0.05
-23.07
26.34 12.69 -0.97 -2.74
2.53 3.07 -0.01 -1.68
Investment
-9.65 1.57 1.30
Government Spending
Net Exports
2021 Q1
2021 Q2
2021 Q3
2021 Q4
GDP
6.3
7.0
2.7
7.0
Personal Consumption
6.98 -0.82 1.18 -1.02
7.84 0.30 -0.54 -0.60
1.98 1.78 -0.02 -1.08
2.14 5.14 -0.16 -0.16
Investment
Government Spending
Net Exports
2022 Q1
2022 Q2
2022 Q3
GDP
-1.6 0.91 0.98 -0.40 -3.13
-0.6 1.38 -2.83 -0.29 1.16
2.6
Personal Consumption
0.97 -1.59 0.42 2.77
Investment
Government Spending
Net Exports
As the Federal Reserve increased interest rates in 2022, the rate of growth of personal consumption declined relative to 2021 growth rates, but growth remained positive through 2022. The increasing interest rates contributed to significant declines in investment spending, including residential investment, for both the second and third quarters of 2022. Investment spending had contributed to an increase in economic growth for four consecutive quarters prior to the second quarter decline in 2022. Currently, the primary objective for the Federal Reserve is to lower inflation, even at the expense of economic growth. Given that objective, expect weak economic growth at best in 2023. Rising interest rates should temper both personal consumption and investment spending, at the expense of economic growth. Employment The unemployment rate will likely increase in 2023 as weak economic growth (at best) results from rising interest rates. As of September, the Federal Reserve expected the 2023 unemployment rate to increase to approximately 4.5%. There will be a strong emphasis by the Federal Reserve to cool down the labor market as a key component of reducing inflation. The strong consumer spending since the second quarter of 2020 reflects the strong labor market. Implicit in the Federal Reserve’s objective to lower inflation is to cool the hot labor market. The chart below shows the number of unemployed workers per job opening since 2007. The number of unemployed workers to job openings has been less than one since June 2021, lower than at any other time this century. In other words, there were approximately two job openings for every one person unemployed. “Labor shortages” appeared in many industries, leading to a relatively strong increase in wages in both 2021 and 2022. In 2022 the three-month moving average of median wage growth was at its highest levels of the century at over 6% between February and October.
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Center for Business and Economic Insight
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