U.S. economic activity expanded faster than expected in the final three months of 2022, marking a resilient end to a year defined by stubborn inflation, rising interest rates, and battered financial markets.
The Bureau of Economic Analysis' advance estimate of Q4 U.S. gross domestic product (GDP) showed the economy grew at an annualized pace of 2.9% during the period, faster than consensus forecasts. Economists surveyed by Bloomberg had expected this report to show the U.S. economy grew at an annualized pace of 2.6% during the final three months of 2022.
While the preliminary fourth-quarter reading reflects a slowdown from 3.2% in the prior period, the rise in GDP rounds out a year of healthy growth after the economy contracted in each of the first two quarters of 2022.
For the full year, GDP increased 2.1% compared to 5.9% across 2021, which was the fastest pace of growth since 1984.
The BEA attributed the rise in fourth quarter GDP to broad-based increases in private inventory investment, consumer spending, federal government spending, state and local government spending, and nonresidential fixed investment.
Those components, however, were partly offset by declines in residential fixed investment and exports. Imports, which are a subtraction in the calculation of GDP, also decreased.
Personal consumption expenditures (PCE) — or consumer spending — which comprises roughly two-thirds of domestic activity rose at 2.1% clip, a modest slowdown from 2.3% in the prior quarter.
Some cracks in consumer activity, however, did emerge in the report. While Americans continued to spend on services, the release reflected a decrease in spending on goods, primarily in food and beverages and motor vehicles.
Residential investment also posted a notable drop, plunging 26.7% as home sales waned last year against a backdrop of surging mortgage rates.
"The 2.9% annualized rise in fourth-quarter GDP was a little stronger than we had expected, but the mix of growth was discouraging, and the monthly data suggest the economy lost momentum as the fourth quarter went on," Capital Economics senior U.S. economist Andrew Hunter said in a note. "We still expect the lagged impact of the surge in interest rates to push the economy into a mild recession in the first half of this year."
Pantheon Macroeconomics chief economist Ian Shepherdson also pointed out in a note Thursday's headline GDP data "flatter the underlying picture," as half of overall GDP growth came from inventory builds while foreign trade contributed 0.6% to the reading — neither of which are sustainable sources of economic growth.
"We think final demand growth will be minimal in the next couple quarters, with headline GDP falling," Shepherdson said. "Whether this eventually is declared a recession will depend on what happens to employment and incomes, but they are both likely to soften markedly, at least."
Shepherdson added that this data also "does not reflect the full impact of the Fed’s tightening, so these data reinforce our view that further rate hikes are unnecessary."
The U.S. central bank raised interest rates by a cumulative 425 basis points in 2022 from near-zero levels to quell stubborn inflation, with more hikes likely to come early this year. The U.S. labor market has averted any substantial hit from higher rates, while other facets of the economy such as housing and manufacturing have shown signs of a slowdown.
On the inflation front, the Federal Reserve's preferred measure showed prices continued to stabilize during the quarter. The personal consumption expenditures price index rose (PCE) at an annualized 3.2% rate, down from 4.3% in the prior three months.
Core PCE, which strips out the volatile food and energy components of the reading, increased 3.9% year-over-year compared to 4.7% in the prior two quarters.
Source: yahoo.com
