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GDP increased in Q1 2023, but experts forecast recession

In Q1 2023, real gross domestic product (GDP) increased 2% annually, but some experts forecast recession by the end of the year. Still, many Americans say they have a plan to weather a financial crisis.

Real gross domestic product (GDP) increased at an annual rate of 2% in the first quarter of 2023, according to the third and final estimate released by the Bureau of Economic Analysis (BEA). That marked a slowdown from the 2.6% increase experienced in the final quarter of 2022. 

The increase in first-quarter real GDP was revised up 0.7 percentage points from the second estimate, the BEA said. The upward revision was mainly driven by an increase in exports and consumer spending.

"Although real GDP slowed down from Q4 2022 (2.6%), the major upward revision shows that the economy was much stronger at the beginning of this year than expected," VettaFi said in a post.

Despite evidence of economic growth, some factors suggest a recession may be near, one expert said.

"A range of leading indicators point to a meaningful probability of recession in the coming quarters at the same time that the Federal Reserve ups the ante on rate hikes as they continue to wage their focused fight to tame inflation," Plante Moran Financial Advisors CIO Jim Baird, said in a statement.

Still, Americans’ disposable income increased to $587.9 billion in the first quarter, a 12.9% spike from the previous estimate, the BEA said. In addition, personal savings reached $840.9 billion in the first quarter, marking an upward revision of $11.6 billion from the previous estimate. The personal saving rate as a percentage of disposable income was 4.3% in the first quarter, an upward revision of 0.1 percentage points from the last estimate.

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Despite evidence of recent GDP growth, experts have not put a 2023 recession off the table, as the Federal Reserve forecasts future rate hikes to reduce inflation to its targeted 2% range. 

"Mixed data has painted a muddled picture of macroeconomic conditions in recent months, though a recession remains the most likely outcome of the rapid tightening of monetary policy and late-stage business cycle dynamics," the Fannie Mae Economic & Strategic Research (ESR) Group said in a post.

And regardless of confidence in the economy, some Americans fear a recession is looming. The Expectations Index—based on consumers’ short-term outlook for economic factors like labor market conditions—reached 79.3 points in June, up from 71.5 points in May, according to the think tank The Conference Board

"Despite June’s gains, the expectations gauge has now remained below 80 for 15 of the past 16 months—a signal that consumers still anticipate a recession at some point over the next 6 to 12 months," The Conference Board said in a report. 

Moreover, 67% of U.S. adults said they expect a recession later this year, according to a Northwestern Mutual study published in May.

"The impact of inflation continues, and Americans are reminded about elevated prices every time they fill up their gas tanks," said Northwestern Mutual Chief Customer Officer Christian Mitchell. "However, worries about recession are quickly rising from nil to real. For Gen Z in particular, that means learning how to prepare for the long-term and the risk of the first sustained economic downturn in their young professional lives."

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With evidence of a possible recession, some investors said they feared a financial downfall was already happening. In fact, four in 10 investors (39%) said they believed the U.S. is in a financial crisis, according to a Nationwide survey published in April. Moreover, only 36% said they’re confident they will survive a modern financial crisis despite living through previous ones, Nationwide reported. 

"With the echoes of the COVID recession and 2008 still fresh in people’s minds, it’s not surprising investors are bracing for the worst considering some of the news making headlines this year," Mark Hackett, Nationwide’s chief of investment research, said in a statement. 

Nonetheless, many Americans said they have a plan that would help them weather a financial crisis.

In fact, 88% said having a plan for their investments made them feel more confident that they could make the right investment decisions despite extreme financial crises, according to Nationwide’s survey. Plus, 31% of Americans that worked with an advisor said they were less nervous, and 40% were more confident in their ability to weather another financial meltdown compared to Americans who didn't have one.

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Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at moneyexpert@credible.com and your question might be answered by Credible in our Money Expert column.

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