This morning, the Bureau of Economic Analysis delivered an advance estimate of fourth quarter GDP growth.  The report showed that real GDP expanded at an annual rate of 2.9%, compared to expectations of +2.6%, following growth of 3.2% in the third quarter.

  • Consumer strength amid housing weakness. The increase in real GDP reflected increases in private inventory investment, consumer spending, government spending, and nonresidential fixed investment that were partly offset by a decrease in residential fixed investment.  Consumer spending (personal consumption) rose 2.1% for the period, down slightly from 2.3% in the third quarter, but still positive contributing 1.4% to the overall GDP reading.  Meanwhile, a 27% contraction in residential fixed investment (housing market) detracted 1.3% from the overall GDP reading.
  • Healthy 4Q, but risks lie ahead. All in, today’s report shows the U.S. economy expanded at a healthy pace in the final three months of 2022, though risks lie ahead as the burden of elevated prices and higher borrowing costs is mounting.  Markets are currently pricing for a 0.25% rate increase at next week’s FOMC meeting and another quarter point hike in March.