The United States’ economy is experiencing signs of instability, with shoppers becoming increasingly cautious and lenders tightening their grip on credit. According to a report from the Commerce Department, the nation’s gross domestic product grew by just 1.1% in the first three months of 2023 compared to the previous quarter’s 2.6% pace. The decline is due to a drop in inventories and housing investment. Furthermore, rising prices and higher interest rates are expected to further impede growth in the coming months.
Worried shoppers, faced with rising food costs and other expenses, are choosing to spend less. The CEO of McDonald’s, Chris Kempczinski, has predicted a mild recession in the U.S. As a result, customers have become less likely to splurge on items like supersizing their orders. Virginia resident Desiree Prince asserted that she now makes budget-conscious decisions, even when it comes to her vacations. Prince specifically stated that she and her family have had to be selective about activities to participate in vacation.
In the United States, personal spending is the most significant driver of the economy. Personal spending grew at an annual rate of 3.7% in the first quarter of 2023. Mark Zandi, the chief economist at Moody’s Analytics, has said that people may not be spending aggressively, “but they are spending enough to keep the economy moving forward.” While Zandi believes that the US can escape an outright recession this year, he warns that it won’t be easy.
The collapse of Silicon Valley Bank and Signature Bank, along with the resulting reduction in lending by other banks, has made it difficult to keep the economy afloat. The Federal Reserve is still raising interest rates. As a result, job growth has slowed, and even infamous companies like McDonalds and General Motors have been cutting white-collar jobs. The construction industry, in particular, is feeling the hit. Construction companies cut 9,000 jobs last month.
The fact that profitable companies are cutting jobs and banks are starting to fail has rattled even those in secure jobs, like Prince, a nuclear engineer. Meanwhile, politics is also adding to the economy’s insecurity, as members of Congress argue over the federal government’s debt limit. House Republicans are calling for spending cuts and other concessions in exchange for allowing the government to get more money. The White House is adamant that it won’t negotiate and has emphasized that the full faith and credit of the government must be safeguarded.
If no agreement is reached by summer, the government could default on its debts, leading to a drop in stock prices, increasing borrowing costs, and a lot of uncertainty. Consequently, the economy is projected to suffer greatly.
