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Quarterly change from annual rates, adjusted for inflation
Economic growth remained solid late last year as a strong job market and slowing inflation allowed Americans to sustain spending despite recession fears.
Inflation-adjusted U.S. gross domestic product grew at an annual rate of 2.9 percent in the fourth quarter of 2022, the Commerce Department said on Thursday. That was a slight decline from a 3.2 percent growth rate in the third quarter. Consumer spending, the bedrock of the US economy, grew 2.1 percent. The data are preliminary and will be revised at least twice in the coming months.
“The economy continued to spin,” said Michael Gapen, chief US economist at Bank of America. “There’s more momentum in the economy at the end of the year than we thought, and a lot of that is coming from households.”
Healthy fourth-quarter growth capped a year in which economic output contracted in the first half, prompting talk of a recession and then rebounding. For the full year, measured from the fourth quarter of last year, GDP grew 1 percent, a significant decrease from 5.7 percent growth in 2021.
The seesaw pattern in 2022 was driven by large swings in trade and inventories, historically the most volatile components of GDP. The bigger picture, economists say, is simpler: The recovery from the pandemic recession has cooled from the frantic pace of 2021, but has remained resilient in the face of war in Europe, inflation around the world and an aggressive series of US rate hikes – Domestic central bank.
“2020 was the pandemic. 2021 was the recovery from the pandemic. 2022 was a transitional year,” said Jay Bryson, Wells Fargo’s chief economist. “It will go down in the history books as an OK year.”
The question now is whether this resilience can continue in 2023. Inflation remains too high by many standards, and the Fed is expected to raise rates further to bring prices under control. A showdown in Congress over raising the debt ceiling could lead to further financial turmoil — or a crisis if lawmakers fail to reach an agreement. Many forecasters are still saying a recession is likely, maybe later this year.
There are already signs of tightening, particularly in the sectors most sensitive to higher borrowing costs. Construction activity and house sales have slowed significantly. Tech companies have announced tens of thousands of layoffs in recent weeks. Manufacturing output fell in November and December.
Even the trusty motor of consumer spending could be sputtering: Retail sales have fallen for two straight months and Americans are increasingly turning to credit cards as pandemic-era savings dry up.
“The savings rate has continued to fall,” said Mr. Bryson. “Credit card debt continues to rise. These trends – they are not sustainable. It seems consumers continue to run on borrowed time.”
However, economists say a recession is not inevitable this year. Inflation has gradually moderated in recent months, although the unemployment rate has remained low. This could allow the Fed to raise rates more slowly, reducing the risk that it will go too far as the economy cools.
“We’ve had good news on inflation, even though the job market remains strong,” said Wendy Edelberg, director of the Hamilton Project, an economics department at the Brookings Institution. “Now monetary policy can be a little more patient.”
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