Heritage Expert: GDP Report Shows Recession Risks Remain Elevated

Heritage Expert: GDP Report Shows Recession Risks Remain Elevated

Jan 26, 2023 2 min read

WASHINGTON–The Department of Commerce announced its advance estimate of fourth-quarter gross domestic product (GDP) showed real GDP grew at a 2.9 percent annual rate.  

The price index for gross domestic purchases, which measures changes in prices of goods and services paid for in the U.S., grew at a 3.2 percent annual rate, down from 4.8 percent the previous quarter.  

The GDP data comes one day after the Department of Labor released more comprehensive labor market data showing a net loss of 287,000 jobs in second quarter of 2022, compared to a gain of 1 million jobs reported in monthly data. 

Parker Sheppard, director of the Heritage Foundation’s Center for Data Analysis, released the following statement Thursday in response to this latest economic data: 

“Today’s data indicate the risk of a recession remains elevated given slowing growth and tightening monetary conditions.  

 

“Real GDP growth stalled in 2022, a year with two quarters of negative growth, a common indicator of the start of a recession. Different measures of the labor market are sending conflicting signals about whether the economy has peaked. Yet, unemployment is near all-time lows and is likely to rise back toward its long-run average in the near term. 

 

“Despite the uncertainty in the economic outlook, the Fed should continue to make small adjustments to interest rates as economic data comes in to finish the job of bringing down inflation and to provide relief for Americans.  

 

“Congress can help the economy achieve a soft landing by reducing federal debt from its post-pandemic highs. Larger federal debt means federal interest expenses are more sensitive to changes in interest rates. Smaller federal debt makes it easier for the Fed to bring down inflation and return to moderate interest rates without risking a recession." 

BACKGROUND: The price index for gross domestic purchases reached 8.5 percent in the second quarter of 2022, the highest in forty years. The Federal Reserve aggressively raised rates throughout 2022 after being slow to respond to inflation. The interest rate increases are projected to add around $300 billion in interest expenses to the next federal budget

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