G.D.P. Report: U.S. Economy Records Solid Growth (Published 2023) (2024)

Economic growth remained solid at the end of last year as the strong job market and cooling inflation allowed Americans to keep spending despite fears of a recession.

U.S. gross domestic product, adjusted for inflation, increased at an annual rate of 2.9 percent in the fourth quarter of 2022, the Commerce Department said Thursday. That was down slightly from a 3.2 percent growth rate in the third quarter. Consumer spending, the bedrock of the U.S. economy, grew at a 2.1 percent rate. The data is preliminary and will be revised at least twice in coming months.

“The economy continued to motor on,” said Michael Gapen, chief U.S. economist for Bank of America. “There’s more momentum in the economy at year-end than we thought, and a lot of that is from households.”

The healthy fourth-quarter growth capped a year in which economic output contracted in the first half, prompting talk of a recession, then rebounded. Over the year as a whole, as measured from the fourth quarter a year earlier, G.D.P. grew 1 percent, down sharply from 5.7 percent growth in 2021.

The seesaw pattern in 2022 was driven by big swings in trade and inventories, historically the most volatile components of G.D.P. The bigger picture, economists said, was simpler: The recovery from the pandemic recession has cooled from the frenetic pace of 2021, but has remained resilient in the face of war in Europe, inflation around the world and an aggressive series of interest-rate increases by the Federal Reserve at home.

The initial rebound from the pandemic recession was much stronger in the United States than in much of the rest of the world. The gap widened last year as the war in Ukraine threatened to push Europe into a recession and the strict Covid suppression policies in China constrained growth there.

The question now is whether the United States’ resilience can continue in 2023. Inflation remains too high by many measures, and the Fed is expected to continue increasing rates in an effort to bring prices under control. A congressional showdown over raising the debt ceiling could cause further turmoil in financial markets — or a crisis if lawmakers fail to reach a deal.

Already, there are signs of strain, especially in the sectors most sensitive to higher borrowing costs. Construction activity and home sales have slowed significantly. Tech companies have announced tens of thousands of layoffs in recent weeks. Manufacturing output fell in November and December.

Even the reliable consumer-spending engine may be starting to sputter: Retail sales have fallen for two straight months, and Americans are increasingly turning to credit cards as pandemic-era savings dry up.

Consumer spending, though solid, was weaker in the fourth quarter than forecasters expected, which may reflect a further slowdown — or even an outright decline — in the final months of the year. Half of the overall growth in the fourth quarter came from businesses building inventories, a sign that many companies may have sold less during the holiday season than foreseen.

But economists say a recession this year is not inevitable. Inflation has begun to ease in recent months, even as the unemployment rate has remained low. That could allow the Fed to raise rates more slowly, reducing the risk that it will go too far in cooling off the economy.

Higher interest rates haven’t dragged down the U.S. economy just yet. But there is one place where they are having a clear impact: housing.

The housing industry — what economists call “residential fixed investment” — contracted at an annual rate of 26.7 percent in the fourth quarter, shaving 1.3 percentage points off overall G.D.P. growth. The big contraction followed an even larger decline in the third quarter, and a slightly milder pullback in the second.

Overall, the industry ended 2022 nearly a fifth smaller than it began the year.

“You’ve already had your recession in residential investment: construction,” said Brett Ryan, senior economist at Deutsche Bank.

The big decline mostly reflects a sharp drop in construction activity last year, as higher interest rates cut into demand and led builders to delay or cancel projects. Transactions also plummeted, as buyers and sellers alike struggled to adjust to the rapidly changing market.

The G.D.P. figures don’t directly account for other aspects of the housing market, such as prices — which have fallen somewhat but haven’t plunged — or rents, which rose rapidly for much of last year.

Wall Street rose on Thursday, following fresh economic growth data that showed the United States remained resilient to higher inflation and interest rates at the end of last year.

The S&P 500-stock index seesawed after the data showed the economy posting solid growth in the fourth quarter, before settling into a steady rally in the afternoon.

Investors and economists had already cautioned that the numbers on fourth-quarter gross domestic product would take a back seat to the latest company earnings reports and forthcoming data on the health of the labor market. Mastercard, JetBlue and American Airlines posted financial results on Thursday morning that beat analyst expectations. Dow and Southwest Airlines missed profit forecasts in their latest reports.

A solid G.D.P. report was widely expected and will do little to change the broader market narrative, analysts said. The data reinforced the view that the economy has held up despite rising inflation and interest rates. The question on investors’ minds is whether that continues.

“Now is crunchtime,” said Luke Tilley, chief economist at Wilmington Trust. “The economy has slowed. Now we see if economic growth continues to drift lower and consumers and businesses keep pulling back on spending, or if this was the slowdown we needed and we crawl along from here.”

• The S&P 500 rose 1.1 percent, after some choppy early trading. The index is more than 5 percent higher for the year, though has come under some pressure this week after signs that an economic slowdown is hitting large technology companies.

• The yield on the 10-year Treasury note, which is sensitive to changes in economic growth, nudged higher, trading around 3.5 percent, as it has for the past couple of weeks.

• The U.S. dollar strengthened somewhat against a basket of other currencies representing America’s major trading partners. The dollar index has fallen nearly 11 percent from its peak in October, having soared to its strongest levels in more than two decades earlier in 2022.

• Oil prices rose, with West Texas Intermediate crude oil, the American benchmark, moving up around $81 per barrel, close to its highest level of the year.

The annual U.S. trade deficit in goods and services surged 13 percent last year to $972.6 billion as Americans continued to purchase record volumes of foreign products, according to data released Thursday by the Commerce Department.

Imports grew 8.1 percent for the year, outpacing exports, which rose 7.2 percent on an annual basis.

The weaker global economy weighed more heavily on trade at the end of last year, the data showed, as pandemic lockdowns in China and a war between Russia and Ukraine dampened demand globally. One exception has been the U.S. energy sector, which has stepped in to provide more natural gas and petroleum products after Europe cut ties with Russia.

In the fourth quarter of last year, overall U.S. exports fell 1.3 percent on an annual basis as shipments of goods to the rest of the world fell sharply. But exports of services, including travel and transport, surged 12.4 percent, as activity continued to rebound from the pandemic.

Imports were also weaker in the quarter, falling 4.6 percent, as higher interest rates discouraged Americans from purchasing durable consumer goods like appliances and machinery. The United States has steadily been raising interest rates in an effort to quash persistent inflation.

Economists and politicians have varying views about how much the trade deficit matters. Some economists see the trade deficit as a product of a growing U.S. economy that is more able to buy goods from abroad, but worry about sustained trade deficits resulting in lower employment and economic growth.

Regardless, when the Commerce Department calculates its measure of economic growth, it adds exports to the national figures for government and private investment and spending, and subtracts imports. In the fourth quarter, weak exports of goods weighed on the gross domestic product, even though imports also decreased.

The trade figures were released as part of the quarterly and annual report on economic growth. A fuller report with final trade data for the year will be issued Feb. 7.

When the pandemic first disrupted the U.S. economy — and economic data — in 2020, The New York Times changed the way it reported certain government statistics. Now, with the pandemic shock no longer producing exceptional economic gyrations, it is changing back.

On Thursday, with coverage of the Commerce Department’s preliminary estimate of U.S. gross domestic product for the fourth quarter of 2022, The Times is again emphasizing the annualized rate of change from the prior quarter, rather than the simple percentage change from one period to the next.

In the United States, G.D.P. figures have traditionally been reported at an annualized rate, meaning the amount the economy would have grown or shrunk if the quarter-to-quarter change had persisted for an entire year.

Annual rates make it easier to compare data collected over different periods, allowing analysts to see quickly whether growth in a quarter was faster or slower than in 2010, for example, or in the 1990s as a whole.

But annual rates can also be confusing, particularly during periods of rapid change. When shutdowns crippled the economy early in the pandemic, G.D.P. contracted at an annual rate of nearly 30 percent. To nonexperts, that might sound as if economic output had shrunk by nearly a third, when in reality the decline was less than 10 percent.

As a result, The Times decided to emphasize the quarterly change in its coverage, a decision explained in detail at the time. (The Times continued to provide the annualized figures as well.)

But now — despite ongoing disruptions tied to the pandemic and new challenges, like high inflation — economic data is beginning to look more normal. So The Times is returning to its practice of reporting G.D.P. and related statistics as annualized rates.