Comment on Today’s GDP report 12/22/2022
The revised GDP report for Q3 2022 showed the economy grew by 3.2 percent during the quarter. While the headline number is inspiring, the report is not a sign of broad-based economic resiliency. Net exports added 2.86 percent to the quarterly total, reflecting a sharp increase in exports and a decline in imports during the quarter. Falling imports are not surprising given the weakness in domestic demand, but surging exports look very suspect in an environment where China has been under a COVID lock down, Europe is experiencing an energy crisis and where the dollar has surged globally over the first 3 quarters of the year. We’d look for this contribution to reverse in the coming quarters. Absent this contribution, the economy was essentially stagnant in the third quarter – like the prior 2 quarters. We continue to see the economy slipping into recession next year as the effects of the inflation and interest rate shocks of 2022 affect activity with a lag. This implies that lower stock values and eventually lower interest rates lie ahead.