WASHINGTON, Sept 26 (Askume) – The U.S. economy will grow faster than initially expected in 2023 due to upgrades in business investment and consumer spending, despite a sharp rise in interest rates by the Federal Reserve, revised government data showed on Thursday.
The annual benchmark revision of the Commerce Department’s Bureau of Economic Analysis (BEA), the government agency responsible for preparing the gross domestic product report, also showed a sharp increase in corporate profits last year. Revisions to the inflation rate remained modest, while the savings rate increased.
“The overall state of the economy hasn’t changed,” Dave Washhausen, the BEA’s deputy director of national economic accounts, told reporters.
GDP grew 2.9% last year, up from a previous forecast of 2.5%. The revision also reflected an improvement in residential investment, including homebuilding. Growth will rise 0.6 percentage points to 2.5% in 2022, with consumer spending and business investment growth being the main driving forces.
The Federal Reserve has raised interest rates by 525 basis points in 2022 and 2023. The Federal Reserve last week cut its overnight benchmark interest rate by 50 basis points to a range of 4.75%-5.00%, reducing the cost of borrowing for the first time since 2020.
The Bureau of Economic Analysis revised national accounts data from the first quarter of 2019 to the first quarter of 2024 to incorporate newly available, more comprehensive source data and improved estimation methods. The first quarter of 2024 GDP data will be released on Thursday morning along with the third estimate of second quarter GDP.
Growth for the first quarters of 2022 and 2023 has also been revised downward, potentially raising concerns among economists that difficulties in adjusting the data for seasonal fluctuations are affecting first quarter growth forecasts.
So-called residual seasonality was a big problem in the first-quarter GDP data before the government addressed the issue in 2018, when it underestimated initial growth expectations. However, Wahausen said the BEA conducted rigorous testing and found no residual seasonality in the current data, noting that the corrections were not in the same range.
“If there had been an upward revision year-over-year in the first quarter in this sustainable category, it would certainly have been on our radar,” Wahlhausen said, adding, “We are still maintaining that there should be no residual seasonality in GDP and GDI.”
Corporate profits are expected to increase by $288.5 billion, or 8.9%, in 2023. As inflation rises, companies enjoy more pricing power.
The impact on earnings from lower wages and salaries was offset by a rise in net interest due to higher interest rates and owner income. This is in line with the government’s estimate of a sharp fall in job growth in the 12 months to March this year.
In income terms, the economy grew by 1.7% last year, higher than the earlier forecast of 0.4%.
Gross domestic income (GDI) is expected to grow by 2.8% in 2022, compared to the previously reported growth rate of 2.1%. In theory, GDP and GDI should be equal, but in practice they differ because they are estimated using different and largely independent sources.
Last year, the upwardly revised gap between GDI and GDP, also known as the statistical gap, narrowed to 0.9% of GDI, while the previous estimate was 1.9%.
Some economists have focused on statistical differences, arguing that GDP is more about the health of the economy. However, not everyone agrees. Most economists say that GDP and GDI averages offer better growth prospects.
GDP and GDI (gross domestic product) will grow by an average of 2.3% in 2023. This was an increase from the previous estimate of 1.5%. From 2018 to 2023, GDP will grow at an average annual rate of 2.3%, compared to the previously stated growth rate of 1.9%.
The savings rate rose to 4.7% in 2023 from a previous estimate of 4.5%. This has come under scrutiny as economists try to estimate how long the solid growth in consumer spending can last. Savings rates have declined slightly over the past four years.
In 2020, when COVID-19 pandemic restrictions kept Americans at home, the savings rate rose to 15.3%.
