US growth slowed in 2022 but was helped by areas such as consumer spending and exports, Commerce Department says
Frederic J. BROWN
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ADDS Biden comments
The U.S. economy grew at a slower pace in 2022 but performed better than expected in the final months of last year, the Commerce Department said Thursday, as recession fears loomed.
Economic activity slowed as the U.S. central bank raised the benchmark policy rate seven times last year, hoping to cool demand and rein in costs as inflation rose.
The real estate sector slumped, followed by a decline in manufacturing and retail sales.
Against that backdrop, the world’s largest economy grew 2.1% for all of 2022, down from the 2021 figure, according to Commerce Department data.
“The increase in real GDP in 2022 primarily reflects increased consumer spending, exports” and some forms of investment, the ministry said in a statement.
For the October-December period, US gross domestic product beat expectations to grow at an annual rate of 2.9%.
The figure was slightly lower than the 3.2% jump recorded in the third quarter of last year and marks a second consecutive quarter of growth after two cycles of contraction.
President Joe Biden on Thursday applauded “very good news for the U.S. economy,” pointing to better-than-expected growth in the fourth quarter and the resilience of the job market.
“We are moving in the right direction. Now we have to protect those gains…that our policies have generated,” he said in a speech in Virginia.
While the economy grew strongly in the fourth quarter, most of the progress came early and a repeat performance in early 2023 is unlikely, said Oren Klachkin of Oxford Economics.
Household spending and business investment remained positive in the final months of last year but slowed, added Rubeela Farooqi of High Frequency Economics.
Inventories and net trading may have supported growth, but analysts warn they cannot be relied upon in the new year.
Meanwhile, investment in the residential sector continued to contract, in the longest streak since the housing crisis, Klachkin said.
The interest rate sensitive housing sector was rocked by the Federal Reserve rate hike as mortgage rates remained elevated and weighed on affordability.
“Looking ahead, recent data suggests the pace of expansion could slow sharply in the first quarter as the effects of tight monetary policy kick in,” Farooqi said.
A separate Commerce Department report released Thursday showed orders for big-ticket U.S. manufactured goods were stronger than expected in December, though the data pointed to a weak end to 2022 for business investment and equipment spending, said she added.
A slowdown would be good news for the Fed and could open the door to a slower pace of future rate hikes.
While unexpectedly resilient consumer spending supported growth last year, there are signs that this key driver is weakening as households dip into their savings during the pandemic period.
That could point to more moderate spending ahead, economists say.
“Consumer spending – the economy’s main growth driver – is expected to weaken as income growth slows and households can no longer rely on excess savings to maintain the desired pace of spending. “, added Klachkin.
“The economy is currently close to full employment, so job growth is bound to slow,” he said.
The United States could slide into recession in the second quarter as consumers limit spending and businesses become more reluctant to hire and invest, Oxford Economics expects.
But others believe that the country could still avoid a recession, if the labor market remains solid and household balance sheets healthy.
Even if households are eating away at their funds due to inflation, “they’re coming from a very high point,” and that should mitigate or prevent a prolonged downturn, according to Moody’s Analytics economist Matt Colyar.
Large-scale layoffs also seem hard to imagine at the moment, as labor supply issues prevent companies from hiring.
“It’s believable that the sweetness we’re seeing remains relatively contained,” Colyar said.
