December 23, 2022
US GDP TRENDS
The sustained inversion of the Treasury yield curve tells us that the Federal Reserve’s aggressive interest rate hikes will ultimately impact US GDP. What actions should your business be taking in light of our revised forecast? Find out in the latest episode of TrendsTalk with ITR VP of Economics Jackie Greene.
The below transcript is a literal translation of the podcast audio that has been machine generated by Rev.
Hi, I’m Jackie Greene, Vice President of Economics here at ITR Economics. Today we’re going to talk about the US GDP trends. In today’s TrendsTalk, we’re going to talk about where the forecast is going, what you can expect, and some ideas about what you should be doing.
So first off, we’re going to be very clear. We did change our forecast for US GDP. The Federal Reserve raised their interest rates high enough that it ended up resulting in an inverse yield curve between the 10 year and the three month, which is a signal for us to be mindful of. It doesn’t mean recession, per se, because of that action, but it’s generally a signal that things are going to get tight and we needed to adjust for it. So that resulted in the mid-decade recession we had already been planning for being pulled in to 2024. So we need to make that change and you need to be making sure that those changes are impacted in your planning so that you are prepared as well.
What to expect. Let’s look at year by year. 2023, still going to be a year of general growth. That part hasn’t changed in our forecast. We were always expecting growth in 2023. However, the growth is going to be slowing, particularly in the second half of 2023. We are going to see that period where it could even go a little flat in the GDP trends. There’s going to be some risks to that part of the forecast, in particular, the end of it. But overall, expect growth for ’23 rather mild though.
And you’re going to want to use that opportunity to be prepared for 2024 because that’s when the real pain point comes. That is where you need to be prepared for some actual contraction in US GDP. We’re expecting roughly two quarters of GDP contraction. It’s currently projected that 1Q ’24 will contract. We’ll get a little bit of lift in 2Q ’24, and then see a little bit more decline in 3Q ’24. That’s the forecast at the moment. However, it is still possible that it could come two quarters of consecutive decline during that time period instead of that waffling around.
Overall, it’s not going to impact your business drastically, which way that falls. The big thing is to be prepared for some decline in GDP during that time period. That’s the main takeaway. How is your business going to be ready? How are you going to be prepared? And really, you need to know how you relate to US GDP because if you are not even relating to US GDP, if you’re relating more to US industrial production, a more industrial gauge of the US economy, you’re going to have to plan differently. The recession’s going to be different in that side of the economy as opposed to the full picture US GDP.
The good news of all this is we are expecting a return to growth in the US economy for 2025. So we will see that rise come again. We will see some good times ahead of us, but we will see that pain coming 2024.
There are a few things to watch out for with this. One of the big risks to this is it’s all tied to what the Fed does. If the Fed keeps its rates rising between another 50 and 100 bps between now and first half of 2023, our forecast will be on track. If the Fed raises rates more than that, we’re going to have some problems and we’re going to have to look at that forecast again. Now also, if the Fed doesn’t start easing off on the rates in the second half of ’23, we’re also going to have to take some more looks at the forecast and see where that takes us.
So there’s always going to be risks. We’re going to have to keep watching it. It’s an ongoing event because the world keeps changing. But as of now, plan for 2024 to be a period of recession. If you’re following the US GDP, make sure you know how you relate. Not every industry is going to have the same recession. It depends on different factors, what industries you are in. Some of them are going to be a little bit more recession proof than others. Some are going to feel more of the pain. Those that really got a boost during COVID are still going to be going through more painful periods than the general macro economy during 2024.
Keep up with us, keep in tune with us, or ask us for help. We love looking at the data. We’re happy to look at your company and how you relate to the overall economy so that we can help you figure out where your markets are going so you’re better prepared for 2024.
Thank you very much for joining us today for today’s TrendsTalk. Look forward to talking with you soon. Have a great day.