Minneapolis (CNN) The US economy grew at a slower pace in the fourth quarter than initially expected, as consumer spending continued to ease.
Inflation-adjusted gross domestic product — the broadest measure of economic activity — rose 2.6% for the final three months of 2022, according to the Commerce Department’s third and final reading for the quarter. Economists had expected GDP growth to hold steady at 2.7%, according to Refinitiv.
In the Commerce Department’s first two readings of fourth-quarter GDP, growth was initially estimated at 2.9%, then revised down last month to 2.7%. At the same time, consumer spending also trended lower, falling from 2.1% in the first reading to 1.4% in the second revision and falling at 1% in the final version released Thursday morning.
The 2.6% expansion last quarter was a slowdown from the 3.2% annualized growth recorded during the third quarter. In addition to the slowdown in consumer spending, the contraction in exports, non-residential fixed investment, and government and domestic spending contributed to the decline in growth.
The index that measures prices paid for personal spending, known as the PCE Price Index, was 3.7% in the quarter, flat with the previously mentioned level.
2022 marked a transitional year for the United States as its economy continued to recover from the pandemic. Imbalances in trade and inventories had a significant impact on GDP data in the earlier parts of the year, while growth in the second half was driven by consumer spending.
“Everyone was going out, shopping, spending and traveling… Those factors led to a fairly strong expansion of the economy last year,” Oren Klashkin, US economist at Oxford Economics, said in an interview with CNN.
He added that this spending also helped increase investment in the business.
However, he said 2023 looks very different than for the most part of last year.
We will have tougher lending conditions, higher inflation, and… [Federal Reserve’s] “Rising interest rates will have a greater impact on the economy. So we should not expect the expansion to be as strong this year as it was in 2022,” he said.
Oxford Economics expects GDP growth of 2.5% during the first quarter of the year and a mild recession to occur in the second half of 2023. The Atlanta Federal Reserve now estimates GDP at 3.2% for the first quarter.
For the full year, projections have diminished. After the collapse of the Silicon Valley bank, which rattled the banking industry, Goldman Sachs cut its forecast for economic growth in 2023 by 0.3 percentage points, to 1.2%.
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