Perplexed female investor

The U.S. economy grew by 2.9 percent in 2022’s final quarter, year on year, more than the 2.6 percent predicted by economists but less than the third quarter’s 3.2-percent expansion, showing the economy losing momentum. 

In contrast, in the last three months of 2021 the economy grew 5.7 percent.

During the quarter, the value of exports slipped but imports fell even more, narrowing the trade deficit. The smaller gap accounted for 0.6 percentage points of the period’s growth, The Wall Street Journal said. They also reported in December inbound volumes at key ports in California were down 20 percent compared to a year earlier, and that since August they have been below pre-COVID War 2019 levels. 

The quarter’s annualized growth came as domestic demand sank to a 30-month low, showing the bite that higher interest rates are taking from consumer spending. 

People bought fewer houses, dropping 2022’s overall housing sales by 18 percent compared to 2021. 

Consumer spending saw the sharpest drop of the year in December.

Factoring inflation into fourth-quarter figures, disposable incomes shrank 3.3 percent, compared to a 1-percent growth in the quarter before, Reuters said.

Purchasing power shrank for middle-income earners last year but expanded for the lowest and highest-earning households.

Lower-paid workers benefited from spiking wages, COVID-era government stipends, and hiring bonuses as the service and hospitality sectors rebounded from the COVID War. Highly-paid workers made enough that inflation did not seriously impact their spending.

In the quarter overall, consumers spent 1.9 percent more than in the same period in 2021, close to 2019’s expansion over the same quarter.

Consumers spent 2.1 percent more in the fourth quarter overall than in the third, devoting more money to buying vehicles as well as services, although spending on vehicles slipped 5.2 percent in December. However, purchases of many other durable goods, which are designed to last at least three years, tanked.

A large share of the quarter’s growth came in October. Retailers saw a disappointing holiday selling season in November and December, leaving more merchandise on their shelves, as we reported in “December Retail Sales: Not a Merry Christmas” (24 Jan 2023).

Due largely to the holiday shopping bust, inventories grew by $129.9 billion through the fourth quarter, compared to $38.7 billion in the third. The extra inventory added 1.46 percentage points to the quarter’s growth figure, Reuters said.

Removing unsold inventories, government spending, and foreign trade, overall spending in the quarter grew by just 0.2 percent, the smallest in sales in the second quarter of 2020 when the COVID War began.

Final sales to private domestic purchasers, a measure of demand across the economy, grew by 0.2 percent in 2022’s last quarter, less than a fifth of the 1.1 percent recorded in the quarter before.

The drop signals an economic slowdown aligned with the U.S. Federal Reserve’s goal of braking the economy to reverse inflation, the U.S. Commerce Department said in a statement reporting fourth-quarter numbers.

Also, private investment other than in housing plunged by 26.7 percent, enough to erase 1.3 percentage points from the GDP, the WSJ reported.

TREND FORECAST: Yes, the worst is yet to come. The more the Federal Reserve raises interest rates, the lower the economy will sink. If they raise them only 25 basis points as is expected tomorrow the economy will slowly sink but equities will stay high. If they raise interest rates 50 basis points the economy and equities will tank.

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