While no one was expecting the economy to keep up the fourth-quarter pace (before the pandemic, quarterly growth had been under 3% for years), GDP is one barometer for the standard of living, so slower growth could mean people and businesses are worse off. Some economists think there’s a good chance that the U.S. will skid into a recession as soon as this year, in large part because the Federal Reserve plans to tackle soaring inflation by raising its benchmark interest rate, and in turn, borrowing costs, throughout the economy. And when a recession is underway, it usually means job losses. The Atlanta Fed doesn’t make an official prediction but instead keeps a running tally of how GDP is faring based on the latest economic data available. Only last week its model estimated 1.3% growth, but since then the Census Bureau revised its data on sales at retailers. Economists at Deutsche Bank reduced their forecast after the revision too, saying they expect no growth at all. The median forecast of economists polled by Dow Jones Newswires and the Wall Street Journal is 1% growth. Consumer spending contributes the majority of GDP, and higher prices for things like gasoline have been hammering household budgets, hurting people’s ability to spend on nonessentials. In fact, people spent 21% less on recreation in March, and also cut back on furniture, plane tickets, and alcohol because of the higher prices on necessities like food and gas, according to a survey by Morning Consult. The surge in inflation may take a more noticeable toll on consumer spending in the second quarter, economists said. In the first quarter, a January wave of COVID-19 cases disrupted business, and supply chain problems reduced how much U.S. producers were able to export. Not only that, but we shouldn’t expect businesses to spend as much money restocking their inventories, economists said. GDP grew so much in the fourth quarter because of those investments. Have a question, comment, or story to share? You can reach Diccon at dhyatt@thebalance.com. Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial tips, all delivered straight to your inbox every morning!
