Fourth Quarter GDP: Expanded Faster Than Expected

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.