A worker assembles components on a diesel engine Monday, April 18, 2022 at the Cummins Seymour Engine Plant in Seymour, Indiana.
Luke Sharret | Bloomberg | Getty Images
The US economy ended 2022 in solid shape, although questions remain as to whether growth will turn negative next year.
Fourth-quarter gross domestic product, the sum of all goods and services produced in the October-December period, rose an annualized 2.9%, the Commerce Department reported on Thursday. Economists polled by Dow Jones had expected a figure of 2.8%.
The growth rate was slightly slower than the 3.2% seen in the third quarter.
Stock market futures rose after the report, while government bond yields were mostly higher as well.
Consumer spending, which accounts for about 68% of GDP, rose by 2.1% over the period, down slightly from 2.3% in the previous period, but still positive.
Inflation values moved significantly downwards. As expected, the price index for private consumption rose by 3.2%, but fell significantly from 4.8% in the third quarter. Excluding food and energy, the chain-weighted index rose 3.9% versus 4.7%.
Along with the consumer push, increases in private inventory investment, government spending and non-residential fixed investment helped lift the GDP figure. A 26.7% slump in residential fixed investment, mirroring a sharp slump in home construction, slowed growth, as did a 1.3% fall in exports.
The report closes a volatile year for economic growth.
After a 2021 in which GDP posted the strongest increase since 1984, the first two quarters of 2022 started with negative growth, in line with a widely held definition of a recession. However, resilient consumer and a strong labor market helped growth turn positive in the last two quarters and provided hope for 2023.
However, most economists believe a recession is very likely this year.
A series of aggressive Federal Reserve rate hikes aimed at taming runaway inflation are expected to materialize this year. The Fed has raised interest rates by 4.25 percentage points since March 2022, to the highest rate since late 2007. Rate hikes are generally lagged, meaning the real impact may not be felt for some time to come.
Markets take it almost certain that the Fed will announce another quarter-point hike at next week’s meeting, and likely another hike of a similar magnitude to follow in March.
Some sectors of the economy showed signs of recession, although overall growth was positive. Residential construction, in particular, lagged, with December building permits down 30% yoy and housing starts down 22%.
Fourth-quarter earnings reports from companies are also signaling a possible earnings recession. With nearly 20% of S&P 500 companies reporting, earnings are down 3%, according to Refinitiv, even on revenue growth of 4.1%.
Consumer spending is also showing signs of slowing, with retail sales falling 1.1% in December.
This is breaking news. Please check here for updates.