The U.S. economy ended 2022 on stable footing, however momentum appears to have cooled barely as shoppers confront the twin menace of stubbornly excessive inflation and rising rates of interest.
Gross home product, the broadest measure of products and providers produced throughout the economy, grew by 2.9% on an annualized foundation in the three-month interval from October by way of December, the Commerce Department stated in its first studying of the information on Thursday. Refinitiv economists anticipated the report to indicate the economy had expanded by 2.6%.
It marked a decline from the 3.2% pace recorded in the third quarter.
Consumer spending – which accounts for about two-thirds of GDP – remained stable in the fourth quarter: It rose 2.1% for the interval, a slight drop from the earlier pace of two.3%. Increases in non-public stock investments, a lift in federal authorities spending and a leap in non-residential mounted earnings additionally helped to spice up the GDP numbers. However, excessive mortgage charges continued to empty demand from the actual property market, with funding in housing plunging 27% for a second straight quarter.
GDP grew 2.1% for the whole lot of 2022 after rising 5.9% in 2021.
Despite the stunning present of resilience, there are rising indicators the economy is starting to gradual. Job progress is moderating; the housing market – which is susceptible to greater rates of interest – entered a recession final 12 months; and shopper spending has proven indicators of cooling off. A separate report launched final week confirmed that retail sales tumbled 1.1% in December as spending on big-ticket purchases like automobiles and furnishings dried up.
Economists extensively anticipate the economy to slide into a recession someday this 12 months as a results of the Federal Reserve’s aggressive rate of interest hike marketing campaign. Policymakers raised its benchmark borrowing seven occasions in 2022 to a spread of 4.25% to 4.5%, the best for the reason that 2008 monetary disaster. Officials signaled that additional fee hikes are coming this 12 months, regardless of indicators that inflation has peaked.
Markets extensively anticipate the Fed to approve a quarter-basis level improve at the conclusion of their two-day assembly subsequent week and comply with that up with one other equally sized hike in March for a peak fee of 5%.
Hiking rates of interest tends to create greater charges on shopper and enterprise loans, which slows the economy by forcing employers to chop again on spending.
Bank of America, Goldman Sachs and Deutsche Bank are among the many main Wall Street corporations forecasting a downturn subsequent 12 months, though they continue to be unsure about its severity.
“The economy is just not but completed absorbing the physique blow to the economy attributable to the majority of the supersized fee hikes that the Fed imposed in the course of the second half of the 12 months,” stated RSM chief economist Joe Brusuelas. “Despite the resilient near a tough 12 months in progress, we simply don’t see such a cheerful ending to a turbulent period of American financial progress.”