By Andrew Moran
The U.S. economy expanded 2.9 percent in the fourth quarter, down from 3.2 percent in the third quarter, according to the Bureau of Economic Analysis (BEA).
The GDP growth rate in the October-to-December 2022 period topped economists’ expectations of 2.6 percent but did come in below the Federal Reserve Bank of Atlanta’s GDPNow model estimate of 3.5 percent.
BEA data showed that the jump in GDP was driven by gains in private inventory investment (1.46 percent), nonresidential fixed investment (0.7 percent), consumer spending (1.42 percent), and federal, state, and local government spending (0.64 percent). This helped offset the declines in residential fixed investment (negative 1.2 percent) and exports (negative 0.15 percent).
The real GDP growth rate, which assesses base-year prices, increased 2.1 percent, down from the 5.9 percent jump in the year-earlier period.
Additional figures highlighted that current-dollar personal income rose increased by 9.9 percent to $311 billion in the fourth quarter, led by higher compensation, government benefits, and personal interest income.
Real disposable personal income rose 3.3 percent, while the personal savings rate increased to 2.9 percent.
The GDP price index eased to a higher-than-expected pace of 3.5 percent, from 4.4 percent in the third quarter. GDP sales rose 1.4 percent, slowing from 4.5 percent in the previous quarter.
On the inflation front, the personal consumption expenditures (PCE) price index slowed 5.5 percent, down from 5.7 percent year over year. The core PCE price index, which excludes the volatile food and energy sectors, rose 4.7 percent, which was “the same as from the fourth quarter of 2020 to the fourth quarter of 2021,” the BEA noted.
The next two fourth-quarter GDP estimates will be released on Feb. 23 and Mar. 30.
What’s the Reaction?
The fourth-quarter GDP has diminished recession fears.
According to Ryan Young, senior economist at the Competitive Enterprise Institute (CEI), there’s growing evidence that the Federal Reserve’s inflation-busting campaign “will not spark a recession.”
“What we’re seeing is the third act of the COVID economic story,” he said in a statement. “The economy was in mostly good shape going into COVID. Then Washington’s spending and monetary excesses raised inflation for a while. Now we’re coming out the other side. Because the economy was in good pre-COVID shape with no financial crises or housing bubbles, it makes sense that it is healing well from the COVID shock.”
But John Leer, chief economist at decision intelligence company Morning Consult, suggests that consumer demand is maintaining its downward trajectory and business investment is likely to slow in the coming quarters, “increasing the probability of a recession has increased this year.”
The overall recession risk “continues to be elevated and many classic warning signs remain on the checklist,” says Nick Reece, a portfolio manager at Merk Investments. But the other scenario is “a rolling slowdown.”
“One hypothesis to consider: we may be in a rolling slowdown where categories of macroeconomic activity (income, spending, production, and employment) go through mild, temporary contractions, but with an asynchronous cadence that lacks the self-reinforcing depth, diffusion, and duration of a true recession,” he said.
Looking ahead to the first quarter, the CEIC GDP Nowcast projects that the U.S. economy will grow just 0.4 percent.
The Conference Board anticipates that the United States will endure three consecutive quarters of negative real GDP growth beginning this quarter.
“However, this downturn will be relatively mild and brief, and growth should rebound in 2024 as inflation ebbs further and the Fed begins to loosen monetary policy,” The Conference Board said in a report.
For the upcoming year, S&P Global forecasts a GDP growth rate of negative 0.1 percent in 2023.
The financial markets had little reaction to the latest GDP figures. The Dow Jones Industrial Average, for example, seesawed between positive and negative territory. The S&P 500 Index and the Nasdaq Composite Index were relatively flat.
The U.S. Treasury market was mostly positive on the day, with the benchmark 10-year yield up about 4 basis points, to around 3.5 percent.
The U.S. Dollar Index (DXY), which gauges the greenback against a basket of currencies, swelled 0.5 percent, to 102.15, from an opening of 101.58.
Flurry of Data
In other economic data on Jan. 26, the Census Bureau reported that durable goods orders increased 5.6 percent in December 2022, up from the 1.7 percent decline in November 2022. The print also topped market estimates of 2.5 percent.
Initial jobless claims fell to 186,000 for the week ended Jan. 21, down from 192,000 in the previous week, according to the Department of Labor (pdf). Continuing jobless claims rose to 1.675 million, while the four-week average, which eliminates week-to-week volatility, slipped to 197,500.
The Chicago Fed National Activity was negative 0.49 in December 2022. In addition, the Kansas Fed Bank Manufacturing and Composite surveys were negative 4 and negative 1, respectively.
On Jan. 27, personal income and spending data for December 2022 will be released. The University of Michigan’s final Consumer Sentiment Index reading for January will also be published.