GDP Report Shows Economic Growth Cooled Slightly in Fourth Quarter

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U.S. economic growth cooled to a 2.9% annual rate in the fourth quarter, capping a year of high inflation and rising interest rates.

U.S. gross domestic product growth at the end of the year was down slightly from a 3.2% annual rate in the third quarter, the Commerce Department said Thursday. The three months from October to December capped a year of economic cool-down from a rapid pandemic rebound that fueled red-hot growth in 2021.

Economic output grew 1% in the fourth quarter of 2022 compared with a year earlier, the Commerce Department said. That compares with 5.7% growth in 2021 and 2.6% growth in 2019 ahead of the pandemic.

At least some of the 2022 slowdown reflected a return to a more normal pace of growth after output surged amid pandemic reopenings, fiscal stimulus and a waning pandemic the year before.

Consumers, the economy’s main engine, spent at a solid pace of 2.1% in the final three months of last year. Business investment and government spending also contributed to growth last quarter.

Despite signs of resilience, many economists are concerned about the possibility of a U.S. recession this year. They expect the Federal Reserve’s efforts to curb high inflation through rapid interest-rate increases will trigger broad spending cutbacks and job losses.

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Recent surveys of U.S. purchasing managers found that higher interest rates and persistent inflation weighed on demand in January in the manufacturing and service sectors. Parts of the economy also showed signs of cooling at the end of last year. Retail sales fell last month at the sharpest pace of 2022, existing-home sales fell for the 11th straight month, and hiring and wage growth eased.

The trajectory of the economy largely depends on how consumers fare in the coming months. There are signs consumers are starting to stumble. Shoppers have reined in spending on home electronics, furniture and clothing after stocking up on those goods earlier in the pandemic.

Still, inflation is coming down from historic highs at the same time wage growth remains strong in a tight labor market.

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The broader economic toll from rising rates can take months to materialize, but one of the most interest-rate-sensitive sectors—housing—is showing signs of pain due to rising mortgage rates. Residential investment declined last year, while home sales fell almost 18% in 2022 from the previous year.

Final sales to private domestic purchasers, a measure of consumer and business spending that gauges underlying demand in the economy, cooled in the second and third quarters of 2022 from previous quarters, the Commerce Department said.

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