Kiplinger's Economic Outlooks are written by the staff of our weekly Kiplinger Letter and are unavailable elsewhere. Click here for a free issue of The Kiplinger Letter or for more information.
The economy is slowing again. First-quarter GDP grew only 1.1%, as strong consumer spending on vehicles was canceled out by businesses not replacing inventory rundowns with new production. Exports and housing were also weak, so almost all the net growth came from government spending.
The modest first quarter may be the high point of the year. While consumers have been willing to spend, that may not continue, as their expectations of future economic conditions have been weakening. Business spending has already pulled back, and businesses are likely to conserve cash for the rest of the year, at least. Export markets are not likely to improve much this year. Government spending will continue, but no major new spending programs are on the horizon. In fact, any resolution of the debt limit issue could reduce federal spending.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The unknowns right now are mostly negative. The banking system should be fine, but hidden land mines could be lurking — for instance, with troubled First Republic Bank’s (FRC) finances. The banking system as a whole is likely to be reluctant to press its luck with much additional lending and appears to be in the process of tightening lending standards because of the many economic uncertainties.
The Federal Reserve is still determined to raise interest rates to combat inflation, which could tip the economy into a mild and short recession. The Fed is likely to raise rates by another quarter of a percentage point at its next meeting on May 3. It may pause its rate hikes after that, but the hit to the economy from that rate increase and previous hikes will continue. We may still dodge a recession, but likely just barely.
Every cloud has a silver lining: The slowing economy will reduce inflation, and take the edge off the labor crunch and new-car order backlogs, perhaps allowing supply to catch up with demand. If inflation does come down as expected, then the Fed might be willing to actually cut interest rates next year.
Source: Department of Commerce: GDP Data (opens in new tab)
More from The Kiplinger Letter
-
-
Why You Should Teach Your Kids Investing
Putting money in the stock market is one of the best ways to build wealth in America. That's why it is so important for parents to teach their kids investing.
-
10 Ways to Prepare Your Home for Summer Weather
Hot summer weather can take a toll on your home if you're not prepared. Follow these tips to make sure you're ready for the season.
-
SpaceX in Good Shape Despite Test Flight: Kiplinger Economic Forecasts
Economic Forecasts SpaceX in good shape despite test flight concerns: Kiplinger Economic Forecasts.
-
Medicare Drug Price Negotiations Latest: Kiplinger Economic Forecasts
Economic Forecasts Medicare drug price negotiations: Early signs have emerged of how these key talks will be handled.
-
TikTok Ban Winners and Social Media Changes: Kiplinger Economic Forecasts
Economic Forecasts TikTok Ban winners, LinkedIn changes: Kiplinger's analysis of the massive social media cross-platform shake-ups.
-
Debt Ceiling Will Be Averted but It Won’t Be Easy: Kiplinger Economic Forecasts
Economic Forecasts Debt Ceiling Will Be Averted but It Won’t Be Easy: Kiplinger Economic Forecasts
-
China to Benefit from U.S. Semiconductor Export Controls: Kiplinger Economic Forecasts
Economic Forecasts Washington wants to limit the use of more advanced tech overseas, which could fuel Beijing’s lower-tech sector
-
Food Prices Fell in March But Are Still Way Up Year-on-Year: Kiplinger Economic Forecast
Economic Forecasts The cost of food remains elevated but there is finally some good news for households.
-
Canada’s Economic Slowdown Could Be Good for the U.S.: Kiplinger's Economic Forecasts
Economic Forecasts Canada’s Economic Slowdown Could Be Good for the U.S.: Kiplinger's Economic Forecasts
-
Deep-Sea Mining Applications to Start in Summer: Kiplinger Economic Forecasts
Economic Forecasts Deep-sea mining applications are due to start in the summer, but it's unclear when mining will actually begin.
