U.S. GDP Growth Beats Expectations in Fourth Quarter

The U.S. economy ended the year on a strong note in 2022, despite concerns that growth may slow down in the coming year. While there are some uncertainties about the future, the overall outlook remains positive. With continued effort and cooperation, the economy is expected to maintain its momentum and continue to grow.
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The Commerce Department reported Thursday that fourth-quarter gross domestic product rose at a 2.9% annualized pace. This is the sum of all goods and services produced for the October-to-December period. Economists surveyed by Dow Jones had expected a reading of 2.8%.
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Growth in the fourth quarter was slightly slower than the 3.2% pace in the third quarter.
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Consumer spending rose by 2.1% during the period, which is slightly down from the previous period's 2.3% growth but still positive overall.
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Inflation readings moved lower than expected. The personal consumption expenditures price index increased by 3.2%, which is inline with expectations, but down sharply from the 4.8% increase in the third quarter. Excluding food and energy, the chain-weighted index rose by 3.9%, which is down from the 4.7% increase in the previous quarter.
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Private inventory investment, government spending and nonresidential fixed investment all contributed to an increase in GDP. However, a 26.7% plunge in residential fixed investment (reflecting a sharp decline in housing) and a 1.3% decline in exports served as a drag on growth.
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This report marks the end of a volatile year for economic growth.
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After a strong year of growth in 2021, the first two quarters of 2022 saw negative growth, matching a commonly held definition of a recession. However, a resilient consumer base and strong labor market helped growth turn positive in the final two quarters, giving hope for 2023.
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Many economists believe that a recession is likely to occur this year.
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The Federal Reserve's aggressive interest rate increases over the past year are expected to start having an impact this year. The Fed raised its benchmark borrowing rate by 4.25 percentage points between March 2022 and December 2022, bringing it back to its highest level since late 2007. Rate hikes usually take some time to have an effect, so we may not feel the full impact of these increases until later this year.
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There is a near-universal expectation among market participants that the Federal Reserve will raise interest rates by another quarter percentage point at its meeting next week, with another similar hike expected in March.
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Some sectors of the economy have shown signs of recession, even though overall growth has been positive. Housing in particular has been a laggard, with building permits down 30% in December from a year ago, and starts down 22%.
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Corporate profit reports from the fourth quarter are signaling a potential earnings recession. With nearly 20% of the S&P 500 companies reporting, earnings are tracking at a loss of 3%, even with revenue growing 4.1%, according to Refinitiv.
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Retail sales in December were down 1.1%, indicating that consumer spending may be weakening. This is a concern for the economy, as consumer spending is a key driver of growth.