Published on 27 Jan 2023 on Zacks via Yahoo Finance
The American economy expanded faster than expected in the fourth quarter, with GDP rising 2.9% annually versus 2.6% expectation. Though the economy has been resilient, the pace of momentum has slowed in recent months due to stubborn inflation, rising interest rates, and battered financial markets. The GDP growth marks a slowdown from the 3.2% advancement in the third quarter.With this, the U.S. economy expanded 2.1% annually in 2022 but is down from an annual growth of 5.9% recorded in 2021— the fastest rate since 1984.That said, most of the ETFs will likely benefit on solid 2022 GDP numbers. ETFs like Consumer Discretionary Select Sector SPDR Fund XLY, iShares U.S. Transportation ETF IYT, Materials Select Sector SPDR XLB, and Vanguard Mid-Cap ETF VO, are expected to outperform.
Retail sales have weakened sharply over the last two months and manufacturing looks to have joined the housing market in a recession. Though mortgage rates have been declining in recent weeks, they remained well above 6%, much higher than the year ago. This is weighing on both new home construction and the sale of existing homes. Meanwhile, business sentiment continues to sour, with spending losing some luster in the fourth quarter (read: Invest in Defensive ETFs as Recession Fear Grows in 2023).The Fed last year raised interest rates by 425 bps from near zero to a 4.25-4.50% range, the highest since late 2007. The increase in interest rates has made borrowing expensive, pushed up the cost of buying a new car or house, increased the cost of carrying credit card debt and thus slowed down economic growth.Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 2.1% in the fourth quarter but slower than a 2.3% increase in the third quarter. The growth came on the back of strong labor market resilience as well as excess savings accumulated during the COVID-19 pandemic. Notably, the unemployment rate is hovering at a multi-decade low of 3.5%.Many forecasters think the economy is likely to slide into a recession this year. Per the latest survey, the U.S. economy has a 64% chance of contracting in 2023. However, the economy might avoid recession if the activity continues to grow this year.
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