Search the archive.

The U.S. economy was much stronger in the first quarter of 2023 than it initially seemed, according to data released Thursday by the Commerce Department.

U.S. gross domestic product (GDP) grew at an annualized rate of 2 percent in the first quarter, according to revised data released Thursday, far faster than the 1.3-percent annualized growth rate estimated by government officials earlier this year.

A flurry of data showed surprising strength in several corners of the U.S. economy, painting a picture of resilience and further delaying any likelihood of recession.

Purchases of new homes climbed at the fastest annual rate in more than a year, durable goods orders topped estimates, and consumer confidence reached the highest level since the start of 2022, according to the Tuesday reports. Another release showed that housing prices in the United States rose for a third-straight month.

The probability of a U.S. recession in the coming year has declined, as the risk of a disruptive debt-ceiling fight has disappeared and stress in the banking sector appears to be only a modest drag on the economy, . Our economists say there’s a 25% chance of recession in the next 12 months, down from their earlier projection of 35% shortly following the failure of Silicon Valley Bank in March. The U.S.’s agreement to raise the nation’s debt limit will result in small spending cuts that are expected to leave the economy’s trajectory unchanged over the next two years, while turbulence among regional banks is forecast by Goldman Sachs Research to subtract about 0.4 percentage points from real (inflation adjusted) GDP growth this year. Growth in the U.S. is also getting a sizable boost from a recovery in real disposable income and stabilization in the housing market, Jan Hatzius, head of Goldman Sachs Research and the firm’s chief economist, writes in the team’s report. Our economists forecast annual average growth this year of 1.8%, which is well above the consensus of private-sector economists and projections from the U.S. Federal Reserve. A critical question is whether the Fed will have to generate a recession to bring inflation back to its target of 2%: The key issue to watch is whether the labor market is able to rebalance smoothly, according to Goldman Sachs Research. “Most of the news in this regard has been positive,” Hatzius writes. Although nonfarm payrolls grew another whopping 339,000 in May, the unemployment rate actually edged up slightly to 3.7% because of a decline in self-employment. For more than a year, the U.S. economy has found ways of creating large numbers of jobs while keeping the unemployment rate very close to its pre-pandemic level of 3.5%. “Once again, we note that this cycle is different,” Hatzius writes. Broader measures of labor market overheating, meanwhile, continue to improve. While the Job Openings and Labor Turnover Survey (JOLTS) showed a surprise increase to 10.1 million in April, the private-sector measures from LinkUp and Indeed declined further in April and May. The quits rate has returned to the top end of the pre-pandemic range. The share of Russell 3000 earnings calls that mentioned labor shortages fell further to 3% in the first quarter of 2023, relative to a peak of 16.5% in the third quarter of 2021. Both average hourly earnings and our economists’ revamped sequential wage tracker have continued to trend down (albeit more slowly than in 2022). Each of our economists’ preferred measures of labor market balance has now reversed significantly more than half of its post-pandemic overshoot, but most still have some way to go before they are consistent with 2% inflation. While declines in inflation are still falling short of expectations, our economists point out that deceleration in inflation across a broad range of indicators is now a fact, not just a forecast, and prospects for further progress in the second half of 2023 also look promising. They forecast core PCE inflation to come down to 3.7% by December 2023, with sequential rates averaging 2.9% in the second half of the year. They expect improving supply chains and declining used-car auction prices to bring down core goods inflation materially starting in June, following what is likely to be another used car price increase in the Consumer Price Index in May. Our economists also think the news on rent inflation remains encouraging, with signs that seasonally adjusted asking rents fell in May despite the rebound in house prices. And the rebalancing in the labor market should bring down core service inflation excluding shelter (although they expect progress to remain only gradual when it comes to shelter inflation).

Treasury Secretary Janet Yellen reportedly said the odds of the U.S. tipping into a recession has come down and suggested a slowdown in consumer spending may be required to conclude the . Speaking about the possibilities of recession, Yellen said, "My odds of it, if anything, have gone down — because look at the resilience of the labor market, and inflation is coming down," to a Bloomberg report. "I'm not going to say it's not a risk, because the Fed is tightening policy," she added. "We probably need to see some slowdown in spending in order to get inflation" under control, Yellen said referring to consumption. She noted that core inflation, which strips out food and energy components, is still high. The Treasury Secretary's comments come as May Consumer Price Index (CPI) rose 4% on an annual basis, the lowest in two years. Core CPI, which strips out energy and food, . "Inflation has really come down a lot — and there's more in the pipeline," Yellen estimated, partly owing to an anticipated adjustment in the housing market, according to the report. Fears about a potential recession have resurfaced lately especially after market participants began weighing the possibilities of extended rate hikes following the Bank of England hiking rates by 50 basis points. The U.K. witnessed a higher-than-expected . On the home front, Federal Reserve Chair Jerome Powell reiterated the central bank's dedication to bringing inflation down to the 2% goal, during his Wednesday testimony before the House Financial Services Committee. He also stated that the Fed does not see rate cuts happening any time soon, during his testimony before the Senate Banking Committee. Inflation Target: Speaking on the argument of changing the Fed's inflation target, Yellen noted it is not the appropriate time for such a debate. "We could have lovely debate for what the inflation target would be," Yellen said. "But this is not the time for that debate." Experts like Allianz chief economic adviser and noted economist Mohamed El-Erian have argued that the central bank's inflation target should be updated. ‘We are now living in a world of supply constraints and if we were to formulate a new inflation target, it will be higher than 2% — it will be more like 3%,' . Powell has rejected the idea of considering a change to the 2% target, according to the report.

Many CEOs, investors and economists had penciled in 2023 as the year when a recession would hit the American economy.

The thinking was that the US economy would grind to a halt because the Federal Reserve was effectively slamming the brakes to squash inflation. Businesses would lay off workers and inflation-weary Americans would slash spending.

While the U.S. economy is strong by many measures, high inflation has weighed heavily on Americans and their views of the economy. Republican lawmakers have blamed Biden and congressional Democrats for fueling high inflation through their economic investments, though prices have surged throughout the world since the end of the COVID-19 recession.

Fresh signs of labor market strength reinforced a picture of an economy with broad-based momentum despite rising interest rates.

So far, economic activity seems to be holding up. Retail sales rebounded in April following two months of declines, advancing a seasonally adjusted 0.4% from the prior month. Employers added 253,000 jobs in April, a strong gain, and average hourly earnings grew 0.5% that month.

Private-sector business activity expanded at a robust pace in May, mostly thanks to the services sector, according to preliminary survey data released by S&P Global on Tuesday. Service-providing businesses reported stronger demand, an easier time hiring workers and increased optimism for business activity in the year ahead. Meanwhile, the US manufacturing sector fell back into contraction territory in May as manufacturers reported substantially weaker demand.

The coronavirus pandemic ignited a startup boom, and the rate of new business creation has remained resilient -- perhaps surprisingly so -- even in the face of economic pressures such as racing inflation and soaring interest rates. That has increased demand for training programs that can help company founders succeed as entrepreneurs, with executive education courses being one avenue.

The higher rates of start-up creation have positively impacted demand for executive programs in entrepreneurship.

A closely watched survey of consumer confidence jumped to a 17-month high, a sign that individuals are feeling better about inflation and the economy. The Conference Board's consumer confidence index hit 109.7 in June, higher than economists polled by The Wall Street Journal had forecast. While the reading is a positive for companies that rely on consumer spending, analysts say improving confidence could complicate the Federal Reserve's campaign to tame inflation.

The last time people felt this good about money matters, stock values were hitting record highs and banks were offering 30-year mortgages with rates well under 4%. KEY TAKEAWAYS The Consumer Confidence Index, the Conference Board's measure of how people feel about their own finances and the economy, rose in June to its highest level since January 2022. The unexpected jump in consumers' outlook added to signs of the economy remaining resilient against falling into a recession. A major source of confidence was the hot job market, with the number of people saying jobs were plentiful rising from May. Consumers’ feelings about their own finances and the broader economy improved in June, although not enough to quell widespread fears of an impending recession, according to The Conference Board’s preliminary Consumer Confidence Survey released Tuesday. The index of consumer confidence, a measure of how people feel about the present situation as well as the future, rose to its highest level since January 2022, before the Federal Reserve began slowing the economy with its campaign of anti-inflation interest rate hikes. The sunnier disposition of consumers in June reversed two straight months of declines and added to recent signs of the U.S. economy staying resilient under pressures dragging it towards a recession. Economists closely watch measures of consumer confidence because they can be something of a self-fulfilling prophecy: People are more likely to spend more if they are feeling secure, and consumer spending is the main engine of U.S. economic growth, accounting for 68% of the gross domestic product. A major source of optimism in the survey was the job market: 46.8% of those surveyed said jobs were plentiful, up from 43.3% in May and consistent with recent government data showing job openings are indeed staying plentiful as many employers remain in hiring mode. “It all comes down to jobs. Having a job. Having a steady income. That's key,” said Jennifer Lee, senior economist at BMO Capital Markets, in a commentary.  The overall consumer confidence index jumped to 109.7 from 102.5 in May, much more than the increase to 104 that the median forecast of economists polled by Dow Jones Newswires and the Wall Street Journal had predicted. Feelings improved in multiple areas of the survey, which polls about 3,000 households. Expectations for inflation rates a year from now fell for a third straight month and the share of people who said business conditions were good rose to 23.7% from 19.7%. People were also feeling optimistic about their own finances, with 30% saying their family finances would improve over the next six months, with only 14% expecting them to get worse. Expectations for a recession fell too, with 69.3% saying one was “somewhat” or “very likely,” compared to 73.2% in May. An index measuring expectations for the future rose to 79.3 from 71.5, which is significant because historically, that measure has signaled a recession ahead when it falls below 80, according to Conference Board economists, and it has been under that level since December. 

KEY TAKEAWAYS - Rising consumer confidence and optimism about the travel industry lifted U.S. equities on Tuesday, June 27, 2023. The Dow, S&P 500, and Nasdaq were all in the green for the first time in almost two weeks. Retail, tech, and travel-related stocks gained, and Generac helped lead the S&P 500 higher on heat wave-related generator demand. U.S. equities posted strong gains as The Conference Board reported that consumer confidence in June was the highest in a year-and-a-half, and on positive news about the travel industry. The Dow, S&P 500, and Nasdaq all rose on the same day for the first time since June 15.  Delta Air Lines (DAL) helped lift airline stocks after it raised its outlook on demand. The sector also got a boost from expectations of record-setting travel volume during the July 4 holiday weekend. Shares of booking sites, hotels, and casinos benefited as well. It was a bounceback day for shares of Carnival Corporation (CCL) and other cruise lines after yesterday’s selloff.  The positive consumer news sent shares of retailers, including Home Depot (HD), Nike (NKE), Macy’s (M), and Kohl’s (KSS), up. Tech stocks advanced, with shares of Meta Platforms (META), Apple (AAPL), Microsoft (MSFT), Tesla (TSLA), and Salesforce (CRM) climbing. Generac Holdings (GNRC) shares jumped as demand for generators soared because of a blistering heat wave hit the Southern U.S. A Goldman Sachs upgrade sent Kellogg (K) shares higher. Walgreens Boots Alliance (WBA) was the worst-performing stock in both the Dow and S&P 500 as the biggest U.S. drugstore chain slashed its full-year profit outlook, citing a slowdown in consumer spending and demand for COVID-19 products and services. Shares of rival CVS Health Corporation (CVS) also lost ground.  Struggling electric truck maker Lordstown Motors (RIDE) declared bankruptcy and sued investment partner Foxconn Technology, and shares plummeted. Shares of Illumina (ILMN) tumbled after the genetic sequencing equipment manufacturer began laying off workers as it takes steps to cut expenses by $100 million. Gold prices dropped, and so did shares of Newmont Corporation (NEM) and other gold miners.  Oil futures declined. The yield on the 10-year Treasury note rose. The U.S. dollar gained on the yen, but slipped versus the euro and pound. Most major cryptocurrencies traded higher. 

WASHINGTON, June 27 (Reuters) - U.S. consumer confidence increased in June to the highest level in nearly 1-1/2 years amid renewed labor market optimism, while business spending appeared to hold up in May, indicate[ng the economy remained on solid footing despite fears of a recession. Hopes that the economy could avoid a downturn in the near-term were also bolstered by other reports on Tuesday signaling a housing market revival was likely underway, with new home sales racing to a 15-month high in May and monthly house prices rising again in April. The upbeat data, however, suggested the Federal Reserve will likely have to continue raising interest rates to slow demand in the overall economy. The U.S. central bank, which has raised its policy rate by 500 basis points since March 2022, signaled this month that two additional rate hikes were warranted this year. "The U.S. economy continues to steadily defy expectations and the fact that it is doing so without lots of hoopla is a good thing," said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto. The Conference Board said its consumer confidence index rose to 109.7 this month, the highest reading since January 2022, from 102.5 in May. Economists polled by Reuters had expected the index to climb to 104.0. Consumers under the age of 35, and those with an annual income of more than $35,000 were the main drivers of confidence this month. Consumers, however, continued to expect a recession at some point over the next six to 12 months. But they grew more upbeat on the labor market, with the share viewing jobs as "plentiful" rising and the proportion of those saying jobs were "hard to get" falling. The survey's so-called labor market differential, derived from data on respondents' views on whether jobs are plentiful or hard to get, rose to 34.4 from 30.7 in May, a sign labor market conditions remain tight despite first-time applications for state unemployment benefits hovering at more than 1-1/2-year highs. This measure correlates to the unemployment rate in the Labor Department's closely followed employment report. Though income expectations eased a bit, consumers were generally optimistic about family finances. "This might reflect consumers' belief that labor market conditions will remain favorable and that there will be further declines in inflation ahead," said Dana Peterson, chief economist at The Conference Board in Washington. Consumers' 12-month inflation expectations dipped to 6.0%, the lowest reading since December 2020, from 6.1% last month. The improvement in confidence mirrored the  sentiment survey. But consumers' buying plans softened, with fewer households intending to purchase motor vehicles, major appliances and houses over the next six months. Vacation was also not on many consumers' minds. But economists cautioned there was no strong correlation between buying plans and consumer spending. U.S. stocks were trading higher. The dollar slipped against a basket of currencies. U.S. Treasury prices fell. FLOOR FOR HOUSING The run of positive economic news was extended by a separate report from the Commerce Department showing orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, increased 0.7% in May. The rise in orders for these so-called core capital goods handily beat economists' expectations for them to be unchanged. Though a downward revision to April's increase to 0.6% from 1.3% took some of the shine from the data, business spending was holding up despite the pain from higher borrowing costs. There were notable increases in orders for electrical equipment, appliances and components as well as machinery. Shipments of core capital goods gained 0.2% in May after climbing 0.4% in April. Nondefense capital goods shipments including aircraft surged 3.4%. These feed into the calculation of equipment spending in the gross domestic product measurement. Core capital goods Business spending on equipment has declined for two straight quarters, the first back-to-back decline since 2020. "We may not be out of the woods yet, but back-to-back gains in core capital goods orders more broadly point to a potential bottoming out in spending and upside for second-quarter equipment spending," said Tim Quinlan, a senior economist at Wells Fargo in Charlotte, North Carolina. The housing market appears to have found a floor and could even be recovering. A third report from the Commerce Department showed  sales jumped 12.2% to a seasonally adjusted annual rate of 763,000 units last month, the highest level since February 2022, benefiting from a dearth of previously owned homes available for sale. Economists had forecast new home sales, which account for a small share of U.S. home sales, slipping to a rate of 675,000 units. Sales shot up 20.0% on a year-on-year basis in May. New home sales are counted at the signing of a contract, making them a leading indicator of the housing market. New home sales While new home sales can be volatile on a month-to-month basis, they added to data last week showing homebuilder confidence positive in June for the first time in 11 months. Housing  in May and  edged up. A fourth report from the Federal Housing Finance Agency showed monthly house prices rising 0.7% in April after gaining 0.5% in March. Prices increased 3.1% in the 12 months through April after advancing 3.7% in March. "Strength in housing suggests risks for the Fed's goal of a return to 2% inflation over the medium term," said Veronica Clark, an economist at Citigroup in New York. "Housing strength over the summer also supports our base case of further rate hikes sooner rather than later."

CHARLOTTE, N.C. – While the majority of U.S. small-business owners (72%) are concerned about the impact of a potential recession, 76% report they are confident that their business could withstand the downturn. These figures are according to the recently released . The survey of more than 1,000 business owners across the country found that, despite the continued impact of inflation and supply chain issues, 65% of business owners anticipate revenue growth in the next 12 months. Small-business owners were also asked about topics including future plans, sustainability, employee retention and labor. Other findings from the study include: 79% of business owners raised prices over the last 12 months. 53% added benefits and perks to retain talent. 49% plan to use automation and artificial intelligence (AI) tools for their business in 2023. 34% believe the national economy will improve in the next 12 months. “While the dual pressures of inflation and supply chain disruptions continue to incumber operations, small-business owners remain bullish about their prospects for the year ahead,” says Sharon Miller, president of small business and head of specialty banking and lending at Bank of America. “Small businesses are poised for growth, implementing strategies to retain and attract talent and exploring new tools including artificial intelligence to gain an edge in a highly competitive market.” Economic Concerns and Business Outlook The study found that inflation (79%) and a potential recession (72%) top business owners’ concerns over the next 12 months. These entrepreneurs also expressed anxiety around commodities prices (68%), the U.S. political environment (68%), rising interest rates (67%) and supply chain (57%). Despite these concerns, the bottom line remains strong for many entrepreneurs, with 56% of business owners reporting increased revenue in 2022 compared to 2021. Looking ahead at the next 12 months, 48% plan to expand their business (vs. 37% last spring). Additionally, 82% intend to obtain financing in the year ahead (vs. 70% last spring). Retention Efforts and Hiring Plans Struggling with labor shortages and a competitive job market, business owners are increasingly focused on employee retention. Over the past 12 months, 53% have added additional benefits and perks to existing compensation packages, including remote/hybrid work (34%), cost-of-living bonuses (34%) and more vacation time (33%). And 75% of these business owners said their efforts meaningfully impacted employee morale and retention. Additionally, 34% of business owners plan to hire in 2023, up from 26% last spring. Over the past 12 months, 51% implemented additional perks and benefits to attract new talent, such as increased base pay for new employees (54%), remote/hybrid work (30%), new employee training or resource groups (27%) and additional healthcare benefits (27%). Continued Digitization of Business Operations In the past year, 80% of small-business owners adopted digital tools for their business, leveraging digital banking to manage their finances and social media to reach their customers. Business owners are also embracing AI and automation, with 49% planning to use AI tools to enhance their business in 2023. Looking ahead, 55% of entrepreneurs anticipate accepting exclusively digital payments at some point in the future, and 90% say digital tools help make their operations more efficient, helping them save time and stay organized.

The Latest Forecast Weather for small business is a little sunnier this week, but those distant clouds look rough. What it means: Good news when the Federal Reserve did not raise interest rates this past week. Inflation is calming down, but employers are still plagued by anxiety caused by high prices and worker shortages. The storm clouds on the horizon are reflective of lower expectations for the year ahead. Listen: Tom Sullivan and National Federation of Independent Business (NFIB)'s Holly Wade talk about their small business forecasts on a weekly podcast. Listen here.​ Explore key takeaways from the latest small business reports below. The next MetLife & U.S. Chamber Small Business Index release is Wednesday, June 28, 2023.

Optimism has ticked up on Main Street, according to the latest quarterly small business survey from CNBC and SurveyMonkey, but many business owners still have a negative view of the economy. Inflation, labor and supply chain disruptions remain the top three risks, with higher prices far and away the No. 1 concern. In the wake of the collapse of several regional banks, roughly half of small businesses lack confidence in the banking system. While the mood on Main Street has brightened, concerns about the economy, stubborn inflation and the banking system are weighing on small business owners, according to the latest quarterly survey from CNBC and Momentive. Small business confidence for the second quarter rose slightly to 46 from 45 in the first quarter, though that still remains below the baseline for optimism. Forty percent of owners describe their current business conditions as good, up from 34% in the first quarter and nearly half (46%) say they project revenue to increase in the next year. But just 21% say they’d describe the economy as good or excellent — less than half of those that described the economy as “poor” (44%), as challenges continue with inflation and the ongoing labor crunch. The CNBC|SurveyMonkey Small Business Survey was conducted from April 17 through April 24 among more than 2,200 small business owners across the country using Momentive’s platform.

Confidence among U.S. small-business owners improved in the month of May, even though inflation returned to be their top operational concern, followed by labor quality. The National Federation of Independent Business said Tuesday that its small-business optimism index increased to 89.4 in May from 89.0 in April, well below the index long-term average. Still, the reading came ahead of the 88.7 consensus forecast from economists polled by The Wall Street Journal. The NFIB survey provides a monthly snapshot of small businesses in the U.S., which account for nearly half of private sector jobs.

On the price front, input cost inflation was the steepest for five months, as companies stated that greater wage bills, in particular, placed further pressure on business expenses. Conversely, companies sought to remain competitive and drive sales which led to a slower uptick in output charges during June. Finally, firms were upbeat in their expectations for output over the coming year, with the level of optimism the highest since May 2022.

Service sector firms registered a quicker rise in input prices at the end of the second quarter. The rate of cost inflation was the steepest for five months, as companies stated that greater wage bills, in particular, placed further pressure on business expenses. Conversely, companies sought to remain competitive and drive sales which led to a slower uptick in output charges during June.

Overall, the Small Business Confidence Index, a number based on responses to eight questions in the survey, rose slightly to a score of 46 in Q2 2023, one point higher than last quarter and four points higher than the all-time low of 42. Forty percent of small business owners now say current conditions for their business are good, up from 34% last quarter, and almost half (46%) expect their business’s revenue to increase in the next 12 months, up from 43% in Q1. Even though current conditions are viewed as more positive, overall views of the economy are dim with only 3% rating the current state of the economy as excellent, and many more considering it to be fair (34%) or poor (44%).

U.S. small business confidence rebounded in May, but worries about the economy's outlook and inflation remained, according to a survey released on Tuesday that also showed businesses still eager to hire more workers.

The National Federation of Independent Business (NFIB) said its Small Business Optimism Index rose 0.4 point to 89.4 last month. It was the 17th straight month that the index stayed below the 49-year average of 98.

The global economic outlook has improved significantly since the beginning of the year, for completely different reasons in different regions. The labor market remains particularly strong in the U.S. despite aggressive rate hikes; a mild winter mitigated the impact of the energy shock on Europe; and China managed its sudden abandonment of Zero COVID successfully.

Our last outlook in December 2022 forecasted a recession in the U.S. by the middle of this year. We still expect a recession, but not until the end of the year or the beginning of 2024. The U.S. economy has held up shockingly well in the face of over 500 basis points of rate hikes in just over a year. Part of this is policy driven: the Inflation Reduction Act (IRA), Bipartisan Infrastructure Law and CHIPS and Science Act have fuelled significant manufacturing construction spending after years of underinvestment. Consumption, which accounts for just over two-thirds of U.S. GDP growth, has remained robust thanks to a significant cash cushion among U.S. households and the strength of the labor market. The labor market has remained robust in part owing to labor hoarding—firms are reticent to lay off workers given how difficult recruitment has been since the pandemic. We do not have a good way to measure labor hoarding, therefore there is no easy way to identify inflection points. As corporate profits dwindle in a tighter rate environment, firms might capitulate and let workers go. A sudden deterioration in the labor market is likely to impact consumption even more than the state of household bank accounts, and we expect this will be the trigger for the recession.