The numbers: The economy grew a touch slower at the end of 2022 than originally reported — at a 2.7% annual pace, revised government figures show, largely because consumers cut back on spending.
The increase in gross domestic product, the official scorecard of the economy, was reduced from an initial 2.9% growth rate.
Consumer spending, the main engine of the economy, grew at a 1.4% annual clip, rather than 2.1% as originally reported. That mostly explained the drop in GDP growth.
The slowdown in spending suggests the new year got off to a weak start. Economists say the U.S. will will be hard-pressed to match even the modest performance of the fourth quarter in the first three months of 2023.
Early economic data indicate the U.S. is on track to expand at a far slower pace or even to contract.
Rising interest rates and high inflation have forced consumers and businesses to trim spending and investment, most notably in interest-sensitive sectors such as housing and construction.
GDP grew at a 2.1% rate in 2022, down from 5.9% in 2021. All figures are adjusted for inflation.
Key details: The slowdown in consumer spending is a potential red flag: It was the second smallest increase since the early days of the pandemic. Household outlays account for 70% of all U.S. economic activity.
Business investment was somewhat better than initially reported. It grew at a 3.7% pace compared with the previously reported 1.4%. Companies invested more in structures such as buildings and drilling rigs while slashing spending on new equipment.
The growth in inventories, or unsold goods, rose by $97.6 billion, instead of an initially reported $91.2 billion.
Inflation rose at an annual 3.7% pace in the fourth quarter, compared with a 4.3% increase in the prior three-month period.
For the full year, inflation surged 6.8%, the biggest increase since 1982.
Most other figures in the report were little changed. GDP is updated twice after the initial results are published.
Big picture: The U.S. was widely expected to slip into recession in 2023 as the Federal Reserve tightened the screws. The Fed plans to keep raising interest rates to snuff out inflation, putting an expansion that began in mid-2020 at risk.
Consumers are still spending enough money to keep the economy afloat, though, even at the softer fourth-quarter rate.
They’ve been aided by job security resulting from the tightest labor market in modern times. The unemployment rate stands near a 54-year low of 3.4%.
Now, more forecasters think the Fed might achieve a so-called soft landing — taming inflation without a recession.
Looking ahead: “Although the U.S. economy is still growing, it is losing steam,” said Cailin Birch, global economist at the Economist Intelligence Unit.
Market reaction: The Dow Jones Industrial Average
DJIA,
and S&P 500
SPX,
were set to open higher on Thursday. The yield on the 10-year Treasury note
TMUBMUSD10Y,
rose slightly to 3.96%.