The US economic system expanded once more throughout the fourth quarter, registering stable development to finish 2022 at the same time as customers and companies battled traditionally excessive inflation and rising rates of interest.

Gross home product — the broadest measure of financial exercise — elevated at an annualized price of two.9% from October to December final yr, in response to Commerce Division knowledge launched Thursday. For 2022, GDP expanded 2.1%, the report confirmed.

“Plainly the zeitgeist may be very detrimental today on the economic system, so I’m seeing folks decide aside these numbers, and the numbers are good,” stated Robert Frick, chief economist at Navy Federal Credit score Union. “We shouldn’t anticipate them to be implausible, as a result of the economic system is slowing down … however they had been nonetheless very constructive.”

Final quarter’s 2.9% enlargement, whereas a step again from the three.2% annualized development seen within the third quarter, represents continued enchancment on the primary half of the yr when GDP shrank.

Following 2021, which noticed GDP development of 5.9% — the best since 1984 — final yr kicked off with two back-to-back quarters of contraction. These declines set off alarm bells, since two consecutive quarters of detrimental financial development mark a rule-of-thumb, however unofficial, definition of a recession.

Nonetheless, 2022 was a yr of transition because the economic system continued to get better from the pandemic. Imbalances in commerce and inventories had an outsized impact on the GDP knowledge within the earlier elements of the yr.

However companies have since readjusted to snarls within the provide chain, and customers have shifted their spending away from furnishings, bikes and different items and towards providers like journey and eating out.

The sturdy financial development registered throughout the fourth quarter was principally fueled by a “shockingly resilient client,” stated John Leer, chief economist at Morning Seek the advice of.

Nonetheless, there are indicators that’s beginning to wane, he stated.

Fourth-quarter client spending, which was primarily centered in providers sectors, elevated 2.1%, a tick down from the two.3% acquire within the third quarter, in response to Thursday’s report.

“Customers are more and more struggling to navigate the continued results from the spike in costs final yr by drawing on credit score and financial savings,” Leer stated. “With client demand prone to proceed its downward trajectory, enterprise funding can also be prone to gradual within the coming quarters, rising the chance of a recession this yr.”

Final yr, inflation ballooned to a 40-year excessive and remained stubbornly elevated, chipping away at customers’ funds and their confidence. The Federal Reserve launched into a heavy-handed effort to shortly ramp up rates of interest to assist tamp down demand and decrease inflation. Whereas financial coverage adjustments require a while to take impact, sure areas of the economic system (notably housing) have already grown significantly weaker.

Thursday’s report confirmed residential fastened funding slumped 26.7% throughout the last three months of the yr, barely narrower than the third-quarter plunge of 27.1%. Enterprise funding in tools fell 3.7% throughout the last quarter of the yr.

Inflation, which is slowing, stays the wild card for 2023, Frick stated.

“Inflation is the bogeyman right here, and the smaller the bogeyman we now have, the much less strain there may be on the entire different issues which can be holding up the economic system — client spending, enterprise spending, authorities spending,” he advised CNN.

Anticipate the primary six months of the yr to be very dynamic, he stated.

“A variety of it’s going to depend upon which of this stuff fades the quickest: If it’s inflation, we’re in nice form; and if it’s client spending, we’re in not-so nice form,” he stated. “However I believe there are much more positives that we’re taking a look at now than we had been in November.”

Economists had been anticipating fourth-quarter GDP to develop at an annualized adjusted price of two.6%, in response to Refinitiv.

Thursday’s GDP figures are the primary of three official estimates to be launched by the Commerce Division for the fourth quarter. GDP knowledge is usually revised, generally years later.

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