The US economy grew at a slower pace in the fourth quarter than initially estimated, as consumer spending continued to trail off.
Inflation-adjusted gross domestic product — the broadest measure of economic activity — increased 2.6% for the final three months of 2022, according to the Commerce Department’s third and final reading for the quarter. Economists were expecting GDP growth to hold steady at 2.7%, according to Refinitiv.
In the Commerce Department’s first two reads of fourth-quarter GDP, the growth was initially estimated at 2.9%, then revised down last month to 2.7%. Concurrently, consumer spending trended down as well, decreasing from 2.1% in the first read to 1.4% in the second revision and landing at 1% in the final print, released Thursday morning.
Last quarter’s 2.6% expansion was a deceleration from the 3.2% annualized growth recorded during the third quarter. In addition to slowing consumer spending, downturns in exports, non-residential fixed investment, and state and local government spending contributed to the step back in growth.
The index that measures prices paid for personal spending, known as the PCE Price Index, was 3.7% in the quarter, steady with the previously reported level.
2022 marked a year of transition for the United States as its economy continued to recover from the pandemic. Imbalances in trade and inventories had an outsized effect on the GDP data in the earlier parts of the year, while the second-half growth was fueled by consumer spending.
“Everyone was going out and shopping and spending and traveling … and these factors drove a fairly solid expansion for the economy last year,” said Oren Klachkin, a US economist at Oxford Economics, in an interview with CNN.
That spending also helped drive increases in business investment, he added.
However, 2023 is shaping up to look very different from the bulk of last year, he said.
“We’re going to have tighter lending conditions, high inflation, the [Federal Reserve’s] rate hikes are going to have a larger impact on the economy,” he said. “So we shouldn’t expect the expansion to be as strong this year as it was in 2022.”
Oxford Economics is projecting 2.5% GDP growth during the first quarter of the year and a mild recession to occur in the second half of 2023. The Atlanta Federal Reserve’s GDPNow estimate is at 3.2% for the first quarter.
For the full year, expectations have dampened. Following the collapse of Silicon Valley Bank, which roiled the banking industry, Goldman Sachs cut its outlook for economic growth in 2023 by 0.3 percentage points to 1.2%