US economy grows 2.9 percent in fourth quarter CY22

As per estimates of the US Commerce Department, the US GDP expanded 2.9% annualized for the fourth quarter ended December 2022. This is lower than the 3.2% achieved in the third quarter, but this is only the first estimate of GDP for Q4 and there are more estimates from the BEA coming in the next couple of months. However, economists have warned that this could be the last quarter of impressive growth, which could taper from Q1CY23 onwards.

The thrust for the fourth quarter came from resilient consumer spending as well as restocking of supplies by businesses. However, higher mortgage rates had a negative effect on housing, which fell 27% in the quarter. For calendar 2022, the GDP expanded by 2.1%; lower than the 5.9% achieved in 2021. However, year 2021 was all about post-COVID recovery and revenge buying. 

The hawkishness of the Fed is likely to have a lag effect in the coming quarters with growth likely to slow. 

Amidst the tepid news on the GDP front, the US labour markets have remained robust. For instance, the US added 4.5 million jobs in 2022 over and above the 6.7 million jobs added in 2021. Joblessness is at a multi-year low of 3.5%, which is still fuelling inflation. In the coming quarters, the visible slowdown in growth and spending will be welcomed by the US Federal Reserve, which was their target anyways.

Consumer spending was up 2.1%, and it accounts for 70% of the economy triggers. GDP estimates in the US for the first and second quarters of 2023 are expected to be around 1.5%. Clearly, hawkishness is paying off for the Fed. The same cannot be said about the US economy.