According to the Bureau of Economic Analysis (BEA), the second estimate for real gross domestic product (GDP) in the first quarter of 2023 reveals stronger-than-expected economic growth in the United States, driven in part by resilient consumer and government spending.
The BEA report indicates that GDP expanded at an annual rate of 1.3% in the first quarter of this year, compared to the 2.6% growth observed in the final three months of 2022.
Jim Baird, Chief Investment Officer at Plante Moran Financial Advisors, noted that spending increased for both goods and services, with a notable surge in auto purchases accounting for approximately 40% of the quarterly growth in consumption. Consumer spending has benefited from robust labor markets, solid wage gains, and accumulated savings since 2020.
The revised reading surpasses the BEA’s original GDP estimate for the first quarter, which indicated a growth rate of 1.1%. This initial estimate primarily reflected a decline in private inventory investment and a deceleration in nonresidential fixed investment, as stated by the BEA.
Baird commented that the updated first quarter GDP numbers did not introduce significant new information. However, he emphasized that sustained consumer spending, driven by dipping into savings and utilizing credit, cannot persist indefinitely. This raises the risk of a more pronounced economic slowdown or recession if the Federal Reserve’s battle with inflation prolongs.
For individuals grappling with rising prices and seeking to save money, exploring alternative auto insurance providers to reduce monthly premiums may be a viable option. Platforms like Credible allow users to compare multiple car insurance providers simultaneously and select the one offering the most favorable rate.
Consequences of U.S. Debt Default on the Economy
The ongoing stalemate in negotiations regarding the U.S. government’s borrowing capacity to fund government spending poses a significant risk of defaulting on its debt. Failure by Congress to raise or suspend the debt limit before June 1st would result in the federal government running out of funds to meet all its obligations.
The White House warns that a failure to raise the debt ceiling could potentially undo any progress made in improving the economic outlook. The White House stated, “Analysis conducted by the Council of Economic Advisers (CEA) and external researchers reveals that a default by the U.S. government on its obligations—whether to creditors, contractors, or citizens—would swiftly push the economy into a reverse trajectory, with the extent of losses contingent on the duration of the breach. A prolonged default would likely inflict severe damage on the economy, leading to a shift from robust job growth to millions of job losses.”
A debt default would also jeopardize the U.S. credit rating, as highlighted by Fitch Ratings. The credit ratings agency has placed the U.S. credit on ratings watch for a potential downgrade, warning that a failure by lawmakers to reach an agreement on the debt limit by the June deadline could result in the U.S. losing its top credit rating.
Treasury Secretary Janet Yellen further emphasized that a credit downgrade would impact borrowing costs for the Treasury. Yellen stated, “Past experiences with debt limit impasses have shown that delaying action until the last minute to suspend or increase the debt limit can significantly harm business and consumer confidence, increase short-term borrowing costs for taxpayers, and have a negative impact on the credit rating of the United States. In fact, we have already witnessed a substantial increase in Treasury’s borrowing costs for securities maturing in early June.”
Yellen continued, “Failure by Congress to raise the debt limit would cause severe hardship for American families, undermine our global leadership position, and raise questions about our ability to safeguard national security interests.”
If concerns arise regarding the ability to meet debt obligations due to potential delays in Social Security payments, considering a personal loan to manage high-interest debt may be an option worth exploring. Contacting Credible to consult with a personal loan expert can provide valuable guidance and address any inquiries.
Nonchalant Response of U.S. Voters to the Impact of Debt Default on Personal Finances
According to a report by Moody’s Analytics, even a brief breach of the debt limit could result in a decline in real GDP, approximately 1.5 million job losses, and an increase in the unemployment rate to nearly 5% from its current level of 3.4%.
Additionally, if the U.S. defaults on its debt, social security beneficiaries could experience delays in their payments.
Moody’s warned, “If Treasury securities are no longer perceived as risk-free by global investors, future generations of Americans would bear a significant economic burden.”
However, a recent Morning Consult survey revealed that less than half of U.S. voters believe a U.S. debt default would have a substantial impact on their personal finances. While 80% of respondents considered a default to be a “major” problem for the U.S. economy, only 39% believed it would directly affect their personal financial situation.
If you are grappling with high-interest debt, one option to consider is paying it down with a personal loan offering a lower interest rate. Platforms like Credible allow you to compare options from multiple lenders without impacting your credit score.