US GDP rose 2.9% in the fourth quarter, more than expected even as recession fears loom
A worker assembles components on a diesel engine at the Cummins Seymour Engine Plant in Seymour, Indiana, Monday, April 18, 2022.
Luke Sharrett | Bloomberg | Getty Images
The US economy ended 2022 in solid shape, although there are still questions about whether growth will turn negative in the coming year.
Fourth-quarter gross domestic product, the sum of all goods and services produced for the October-December period, rose at a 2.9% annual pace, the Commerce Department reported Thursday. Economists surveyed by Dow Jones had expected a reading of 2.8%.
Growth was slightly lower than the 3.2% in the third quarter.
Share futures rose after the report, while government yields were generally higher as well.
Consumption expenditure, which makes up about 68% of GDP, increased by 2.1[ads1]% for the period, slightly down from 2.3% in the previous period, but still positive.
Inflation readings went significantly lower. The price index for personal consumption rose 3.2%, in line with expectations, but sharply down from 4.8% in the third quarter. Excluding food and energy, the chain-weighted index rose 3.9%, down from 4.7%.
Along with the increase from consumers, increases in investment in private inventories, government spending and fixed investment in commercial buildings helped lift the GDP figure. A 26.7% fall in residential fixed investment, reflecting a sharp decline in the housing market, acted as a drag on growth, as did a 1.3% decline in exports.
The report concludes a volatile year for economic growth.
After a 2021 in which GDP rose at its strongest pace since 1984, the first two quarters of 2022 started with negative growth, matching a common definition of a recession. However, a robust consumer and a strong labor market contributed to positive growth in the last two quarters and gave hope for 2023.
However, most economists believe a recession is a strong possibility this year.
A series of aggressive rate hikes by the Federal Reserve aimed at curbing ongoing inflation are expected to rise this year. The Fed raised its benchmark interest rate by 4.25 percentage points since March 2022 to the highest rate since late 2007. Rate hikes generally operate on a lag, meaning their real impact may not be felt until some time ahead.
The markets see a near certainty that the Fed will adopt another quarter of a percentage point increase at its meeting next week, and will probably follow up with another increase of a similar size in March.
Certain 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%.
Fourth-quarter corporate earnings reports also signal a potential earnings recession. With nearly 20% of S&P 500 companies reporting, earnings are trailing at a 3% loss, even with revenue growth of 4.1%, according to Refinitiv.
Consumer spending also shows signs of weakening, with retail sales down 1.1% in December.
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