The U.S. economy maintained its resilience from October through December despite rising interest rates, growing at a 2.6% annual pace, the government said Thursday in a slight downgrade from its previous estimate. The government had previously estimated that the economy expanded at a 2.7% annual rate last quarter.
The rise in the gross domestic product — the economy’s total output of goods and services — for the October-December quarter was down from the 3.2% growth rate from July through September. Exports and consumer spending were revised lower in Thursday’s report.
For all of 2022, the U.S. economy expanded 2.1%, down significantly from a robust 5.9% in 2021.
Most economists say they think growth is slowing sharply in the current January-March quarter, in part because the Federal Reserve has steadily raised interest rates in its drive to curb inflation.
The resulting surge in borrowing costs has walloped the housing industry and made it more expensive for consumers and businesses to spend and invest in major purchases. As a consequence, the economy is widely expected to slide into a recession later this year.
The central bank has raised its benchmark interest rate nine times over the past year. The Fed’s policymakers are betting that they can stick a so-called soft landing — slowing growth just enough to tame inflation without tipping the world’s biggest economy into recession.
Yet as higher loan costs spread through the economy, analysts are generally skeptical that the United States can avoid a downturn. The main point of debate is whether a recession will prove mild, with only minor damage to hiring and growth, or severe, with waves of layoffs.
In the meantime, the job market has remained robust and exerted upward pressure on wages, which feeds into inflation. The pace of hiring is still healthy, and the unemployment rate is near a half-century low. The confidence and spending of consumers, who fuel the bulk of U.S. economic growth, remains relatively solid.
Thursday’s report from the Commerce Department was its third and final estimate of GDP for the fourth quarter of 2022. On April 27, the department will issue its initial estimate of growth in the current first quarter. Forecasters surveyed by the data firm FactSet have estimated that growth in the January-March quarter is decelerating to a 1.4% annual rate.
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