Q4 GDP Rose More than Expected, Despite Looming Recession Fears
January 26, 2023
The U.S. economy showed surprising resilience at the end of 2022, weathering rampant inflation, higher interest rates, and geopolitical uncertainty, even as questions persist over whether growth will turn negative in the year ahead.
Fourth-quarter gross domestic product, which represents the sum of all goods and services produced between October and December, rose at a 2.9% annualized pace, according to the Commerce Department. That is slightly better than the 2.8% growth economists surveyed by Dow Jones had been expecting.
Consumer spending, which accounts for roughly two-thirds of GDP, increased by 2.1% for the period, down slightly from 2.3% in the third quarter.
In addition to strong consumer spending, increases in private inventory investment, government spending, and nonresidential fixed investment gave GDP a boost.
One major drag on the quarter was a severe downturn in residential fixed investments, which plummeted 26.7%. The housing downturn reduced the headline GDP number by about 1.3 percentage points. Exports also saw a marked decline, slowing 1.3% from the previous quarter.
The quarter caps off a volatile year for the economy. Following 2021, which saw GDP rise at the fastest pace since 1984, the first two quarters of 2022 saw negative growth, the commonly held definition of a recession. However, strong consumer spending, waning inflation, and a resilient labor market helped growth turn positive in the final two quarters.
Still, despite ending the year on a relatively strong note, economists remain concerned. Monthly economic data points to a loss of economic momentum throughout the quarter, and the lagging impact of last year’s rapid rise in interest rates mean that the probability of a recession on the horizon is still elevated.