Most of 2022 has passed. Looking back on the first three quarters, many indicators of the US economy have shown a significant downward trend. Under the influence of Federal accelerated tightening of monetary policy, the US GDP has grown negatively for two consecutive quarters, down 1.6% and 0.6% month-on-month in the first and second quarters, respectively, falling into a "technical recession". It is expected that the US GDP will achieve month-on-month growth in the third quarter, but the year-on-year growth rate may continue to decline, and the downward risks of the economy continue to increase.
data shows that the contribution rate of private consumption to US economic growth continues to weaken, and the average monthly year-on-year growth rate from March to July this year has dropped to 2.0%, significantly lower than the monthly average of 9.4% in the previous year. However, retail and food service sales in July and August increased by 10.1% and 9.2% year-on-year respectively, indicating that consumption is still the main factor driving U.S. economic growth. The growth rate of government consumption expenditure and investment also continued to decline, with a decline of 1.9% in the second quarter, narrowing from the first quarter, but it still dragged down economic growth by 0.3 percentage points.
Look at trade, the United States' exports are mainly concentrated in the high-tech products and service industries, have strong bargaining power, and are less affected by the appreciation of the US dollar. Import growth slowed down sharply, mainly because high inflation reduced residents' actual disposable income and reduced consumption expectations. In the second quarter, the U.S. trade deficit narrowed, and the contribution rate of net exports of goods and services turned from negative to positive, driving GDP growth by 1.4 percentage points, becoming an important factor supporting economic growth.
As the Federal Reserve continues to raise interest rates, U.S. corporate investment fell sharply by 13.7% in the second quarter, dragging down economic growth by 2.7 percentage points. In July, the month-on-month growth rate of new orders in manufacturing (except national defense) was -0.5%, which was negative for the first time in the past five months. However, the scale of inventory has increased for five consecutive months. The decrease in new orders and the increase in inventory imply that corporate investment enthusiasm will decrease in the future. In August, the number of newly built residential construction rebounded from July, but it still fell by 12.7% from the year-on-year high. As mortgage loan interest rates further rise, real estate sales and investment will continue to slow down in the future. Survey data released by the US federal residential loan mortgage company Freddie Mac showed that in the week ending September 15, the US 30-year fixed-rate mortgage rate was 6.02%, far higher than 2.86% in the same period last year, reaching the highest level since the end of November 2008.
Looking ahead, the Federal Reserve will continue to raise interest rates, downward pressure on industrial production is increasing, government, private and credit liquidity are all facing contraction pressure, and the risk of a US recession is expected to increase.
From the supply side, industrial production may fall back under the influence of factors such as the continued sharp interest rate hikes in the Federal Reserve and the decline in corporate investment. In August, the total industrial output value of the United States increased by 0.08% month-on-month. Although industrial production is still recovering, its growth rate is gradually reaching its peak. In August, the ISM manufacturing PMI index was 52.8%, which was at a low level since July 2020, and the manufacturing industry's prosperity gradually declined.
From the demand side, private liquidity shrinks, coupled with high inflation, will continue to curb the growth of private consumption expenditure. Driven by the large amount of excess savings accumulated during the epidemic, U.S. consumption performed well overall in the first three quarters, but with the slowdown in excess savings consumption and income growth, U.S. residents' consumption expenditure will face more pressure in the future.
Since the beginning of this year, US stock and bond prices have fluctuated significantly. Although the financial market situation improved in August, major US stock indexes fell back to their lows this year in September, resulting in a large amount of US household wealth evaporating. U.S. household debt soared to more than $16 trillion for the first time in the second quarter, up 2% from the first quarter as inflation surged. household balance sheet deterioration and high inflation have an impact on personal disposable income and savings rate, which will weaken the potential of residents' consumption expenditure. According to the latest data from the US Treasury Department, as of October 3, the balance of outstanding federal government debt in the United States was approximately US$31.1 trillion, of which the public held debt was approximately US$24.3 trillion.Under such a high Federal Reserve benchmark interest rate , the cost of repaying principal and interest of federal government debt is high. Can the US economy bear such pressure?
Recently, the China Banking Research Institute's "2022 Fourth Quarter Economic and Financial Outlook Report" predicts that the US economy has a risk of a "hard landing". The federal funds rate is likely to exceed 4% by the end of the year, and the US economy may fall into recession in the first quarter of 2023. Although the fall in energy prices helps to alleviate inflation, US retail and food service sales are still in a growth stage, and monetary policy tightening has not achieved the goal of curbing demand growth, indicating that inflation is more stubborn and will force the Federal Reserve to continue to raise interest rates strongly.
At the same time, the US labor market continues to be tense, the contradiction between labor supply and demand is sharp, and the existence of supply bottlenecks will also weaken the effect of the Federal Reserve's interest rate hike on inflation, which means that the Federal Reserve needs to raise interest rates more significantly and pay a greater economic price. The Federal Reserve is expected to raise the federal funds rate to above 4% by the end of the year, which will be significantly higher than previous expectations. With the sharp upward movement of the interest rate center and the inversion of the long-term and short-term yield curve, the pressure faced by private sector consumption and investment growth will increase day by day. It is expected that the annualized rate of the month-on-month growth of the US economy in the third and fourth quarters of this year will be 1.4% and 0.5% respectively. It will continue to decline and fall into negative growth in the first quarter of next year. It is expected that the GDP growth for the whole year in 2022 is about 1.6%, down 4.1 percentage points from 2021, and the risk of an "hard landing" of the economy is relatively high.
At the investor summit held by US consumer news and business channel a few days ago, the world-renowned hedge fund Castle Group CEO Ken Griffin said that the US economy will fall into recession, and the question is only when it will happen, and this time point may be as early as next year. Although he believes that the United States should continue to implement monetary tightening policies, he also admits that the Fed can do very little in suppressing inflation. The expected future of US hedge fund manager Drucken Miller is even more terrifying. "The United States will experience an economic recession in 2023, and the stock market may stagnate in the next decade, and it is not ruled out that a very bad situation will happen." He believes that the root cause of the problem lies in the $30 trillion quantitative easing policy that lasted for ten years, and the Fed should have stopped this policy long ago.
Due to high inflation and the Federal Reserve's aggressive interest rate hikes, more and more economists and analysts reached an expected consensus that not only Europe is facing an economic recession, but the US economic recession is only a time to go. Such a radical interest rate hike may lead to a "hard landing" risk of the US economy.
way Hong
