The U.S. economy grew faster than forecast into the end of 2022, but there were signs of slowing underlying demand as the steepest interest-rate hikes in decades threaten growth this year.
- Gross Domestic Product (GDP) increased at a 2.9% annualized rate in the final three months of 2022, the Commerce Department reports.
- This is a slight decrease from the 3.2% gain in the third quarter.
- Personal consumption, the biggest part of the economy, climbed at a below-forecast 2.1% pace.
why it’s news
The numbers reveal both a robust economy and one that is showing signs of slowing down. Analysts see this as a further sign that the Federal Reserve still has a path to a soft landing—the Fed will likely slow the pace of rate increases next week.
The data suggests that consumers, whose wages have failed to keep up with inflation, continue to dip into savings accumulated from government pandemic-relief programs. Rising prices and increased borrowing costs portend to a tenuous outlook for the economy.
Various monthly surveys of economists show the economy shrinking in the second and third quarters—with the odds of a recession still above 50% in the coming year.
The S&P 500 Index opened higher after the GDP report and better-than-expected weekly jobless claims. Applications for unemployment insurance dropped to 186,000 last week, the lowest since April.
As the Fed continues to hike interest rates to slow inflation, housing and manufacturing have slowing while the banking and tech sectors are enacting mass layoffs.