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Economy

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The Federal Reserve’s preferred inflation gauge eased further in December, and consumer spending fell — the latest evidence that the Fed’s series of interest rate hikes are slowing the economy. Prices rose 5% last month from a year earlier, down from the 5.5% year-over-year increase in November. It was the third straight drop. Consumer spending fell 0.2% from November to December and was revised lower to show a drop of 0.1% from October to November. Last year’s holiday sales were sluggish for many retailers, and the overall spending figures for the final two months of 2022 were the weakest in two years.

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The U.S. economy expanded at a 2.9% annual pace from October through December, ending 2022 with momentum despite the pressure of high interest rates and widespread fears of a looming recession. Thursday’s government estimate showed that the nation’s gross domestic product — the broadest gauge of economic output — decelerated last quarter from the 3.2% annual growth rate it had posted from July through September. Most economists think the economy will slow further in the current quarter and slide into at least a mild recession by midyear. The economy got a boost last quarter from resilient consumer spending and the restocking of supplies by businesses. Federal government spending also helped lift GDP.

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The second consecutive quarter of economic growth that the government reported Thursday underscored that the nation isn’t in a recession despite high inflation and the Federal Reserve’s aggressive interest rate hikes. Yet the U.S. economy is hardly in the clear. The solid growth last quarter will do little to alter the widespread view of economists that a recession is likely sometime this year. For now, the economy expanded at a 2.9% annual rate in the fourth quarter, though some of the underlying figures weren’t as healthy. Consumer spending, for example, grew at a slower pace than in the previous quarter, and business investment was weak. So what is the likelihood of a recession?

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Wholesale prices in the United States rose 6.2% in December from a year earlier, a sixth straight monthly slowdown and a hopeful sign that inflation pressures will continue to cool. The latest year-over-year figure was down from 7.3% in November and from a recent peak of 11.7% in March. On a monthly basis, the producer price index, which measures costs before they reach consumers, dropped 0.5% from November to December. The producer price data can provide an early sign of where consumer inflation might be headed. The data reflects the prices that are charged by manufacturers, farmers and wholesalers, and it flows into an inflation gauge that the Federal Reserve closely tracks.

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For months, the outlook for the U.S. economy has been a mostly bleak one: Inflation hitting a four-decade high, consumer spending weakening, interest rates surging. Most economists penciled in a recession for 2023. An economic downturn is still possible. Yet in recent weeks, with inflation showing widespread signs of easing, a more cheerful view has gained traction: Maybe a recession isn’t inevitable after all. One reason for the tentative optimism is evidence that an acceleration in U.S. wages, which has benefited workers but also heightened inflation, is slowing. Federal Reserve Chair Jerome Powell has frequently pointed to fast-rising worker pay to explain why the Fed has had to raise interest rates so aggressively.

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The Federal Reserve has only a limited role to play in combating climate change, Chair Jerome Powell said Tuesday, a stance that puts him at odds with environmental activists who have pushed central banks worldwide to take steps to restrict lending to energy companies. Powell said that maintaining the Fed’s independence includes steering clear of issues that are more properly overseen by elected officials. “Without explicit congressional legislation, it would be inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or to achieve other climate-based goals,” Powell said during a panel discussion in Stockholm. “We are not, and will not be, a ‘climate policymaker.’ ”

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The World Bank warns the global economy will come “perilously close” to a recession this year, led by weaker growth in the world’s top economies — the United States, Europe and China. The World Bank lends money to poorer countries for development projects. The bank said Tuesday it had slashed its forecast for global growth this year by nearly half, to just 1.7%, from its previous projection of 3%. Though the U.S. might avoid a recession this year, the World Bank predicts global weakness will pose another headwind for America’s businesses and consumers, on top of high prices and more expensive borrowing rates.

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America’s employers added a solid 223,000 jobs in December, evidence that the economy remains healthy even as the Federal Reserve is rapidly raising interest rates to try to slow economic growth and the pace of hiring. With companies continuing to add jobs across the economy, the unemployment rate fell from 3.6% to 3.5%, matching a 53-year low. All told, the December jobs report suggested that the labor market may be cooling in a way that could aid the Fed’s fight against high inflation. Last month’s gain was the smallest in two years, and it extended a hiring slowdown for most of 2022.

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U.S. job openings slipped in November but remained at high suggesting businesses are still determined to add workers, a blow to the Federal Reserve’s efforts to cool hiring and wage gains. There were 10.46 million job vacancies on the last day of November, down slightly from 10.51 million in October, the Labor Department said Wednesday. That’s down from a peak of 11.9 million in March. Yet the figures show there are nearly 1.8 jobs for every unemployed person, down from a peak of 2 but historically very high. Before the pandemic, there were usually more unemployed people than jobs.