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Published in Economic Development

Economists forecast slowed economic growth through 2023

BY Tuesday, August 23, 2022 09:10am

University of Michigan economists expect the U.S. economy to experience a “very mild decline” the rest of this year before slowing to near zero growth in 2023.

The new outlook that the university’s Research Seminar in Quantitative Economics issued Monday predicts the Real GDP growth rate to slow to 1.5 percent for all of 2022 from 5.7 percent in 2021.

The U.S. could see a “mild contraction” with a 0.3-percent decline in Real GDP from the fourth quarter of 2021 to the fourth quarter of 2022, according to the outlook. By the last three months of this year, “service consumption growth is no longer sufficient to compensate for falling spending on goods and the drag from housing,” a sector that “has been on a downward trajectory since December, falling to well below pre-pandemic levels by August,” University of Michigan economists say.

Real GDP should ease further to a projected 0.9 percent growth rate for all of 2023, then return to “modest growth” of 1.9 percent in 2024, according to the researchers.

Inflation that’s been running at 40-year highs will register at 7.7 percent for 2022, then ease to 4.4 percent in 2023 and 2.6 percent in 2024, according to the University of Michigan outlook.

The Federal Reserve will continue to raise interest rates to fight inflation, then ease rate hikes as inflation slows and reduce interest rates again in late 2023, the economists wrote.

At Comerica Inc., economists in an updated outlook last week wrote that “some of the most reliable leading indicators of the business cycle are pointing to deeper trouble ahead” for the U.S. economy. They include small business sales expectations and unemployment insurance claims that “are flashing red to an extent rarely seen other than before or during a recession.”

“These core economic forecasting tools now say a recession — falling employment, output, sales, and incomes that affect a broad swathe of the economy and last more than a few months — is more likely than not,” Comerica Senior Economist Bill Adams wrote in the Aug. 15 outlook.

However, a recession “is not a done deal,” according to Adams.

“The recent drop in gas prices is great news for household finances, and the further it goes, the better it gets. Job growth has consistently outperformed expectations in the year to date, and could hold up given that labor demand remains extremely high,” Adams wrote.

Comerica forecasts 0.5 percent Real GDP growth for the third quarter this year and 1.3 percent in the fourth. Real GDP growth for all of 2022 will slow to 1.5 percent, followed by 0.6 percent in 2023, then pick up to 1.8 percent in 2024, according to Comerica.

Next year will start with a 1.3-percent decline in Real GDP, according to Comerica.

Adams noted in the latest outlook that the stock market has gone up since July, “a sign that some investors think that the worst is behind us.”

“A muddle-through expansion is still possible. But it has higher obstacles to overcome than seemed the case earlier this year,” he wrote.

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