The US economy grew just 0.7% last quarter, ahead of a potentially destabilizing war with Iran
The US economy grew just 0.7% last quarter, ahead of a potentially destabilizing war with Iran
New data released on Friday revealed that the US economy expanded at a modest 0.7% annualized rate during the October-to-December period, according to the Commerce Department’s second assessment. This figure, which marks a significant slowdown from the 1.4% initially reported, contrasts with the robust 4.4% growth seen in the previous quarter. The revised estimate also adjusted several economic categories downward, including exports, consumer spending, and government expenditures.
Exports, in particular, saw the largest revision, dropping to -3.3% compared to -0.9% in the first estimate. The government shutdown, which had previously hindered economic activity, remains a key factor in the fourth-quarter performance, subtracting 1.16 percentage points from GDP. While economists anticipate recovery in the current quarter—spanning January to March—persistent inflationary pressures and a fragile labor market pose ongoing challenges.
A separate sentiment survey from the University of Michigan indicated that consumer confidence has been affected by rising fuel costs linked to the Iran conflict. The index fell by approximately 2% this month, settling at 55.5. Joanne Hsu, the survey’s director, noted that initial improvements in sentiment were reversed after the military action in Iran, with lower readings erasing earlier gains. This trend aligns with broader concerns about inflation, which is expected to intensify if the Middle East conflict escalates.
The labor market continues to show signs of strain, with February reporting a 92,000 job loss and an unemployment rate increase to 4.4%. However, the Bureau of Labor Statistics reported 400,000 new job openings in January, up from December’s figures. Despite this, layoffs and discharges rose slightly to 2.1 million, according to the latest Job Openings and Labor Turnover report. A weakening job market has historically pressured the Federal Reserve to cut interest rates, but policymakers may now hesitate due to the threat of higher inflation from the ongoing war.
“The full impact on the US economy and financial markets from the Iranian conflict remains highly fluid and uncertain,” stated Kathy Bostjancic, chief economist at Nationwide. “The longer the conflict and disruptions persist, the larger the possible negative hit to business and consumer confidence from increased uncertainty that would inflict further drag on economic activity.”
“The big downward revision in GDP is a gut check going into this energy crunch, increasing the risk of stagflation,” wrote David Russell, global head of market strategy at TradeStation.
With jobs declining and spending slowing, the economy faces a dual challenge. The Commerce Department’s latest report showed consumer spending growth stagnated at 0.4% in January, underscoring the difficulties in maintaining momentum amid rising costs and job insecurity.
