US economy expanded in 4Q as consumers kept spending

The US economy grew more than most analysts expected in the fourth quarter as consumers kept spending amid robust job growth and signs of slowing inflation.

The economy grew at a 2.9pc annual rate in the fourth quarter, slowing from a 3.2pc rate in the third quarter, according to the advance estimate from the Bureau of Economic Analysis. The economy contracted by 1.6pc in the first quarter and by 0.6pc in the second quarter.

The slump in the first half of last year raised concerns the economy was in, or headed toward, recession as inflation surged to four-decade highs amid spiking fuel costs prompted in part by the war in Ukraine, ongoing strains to supply chains and slowing global growth.

Sharp interest rate increases by the Federal Reserve have slowed inflation but concerns remain that the economy could slide into recession this year even as a robust labor market is supporting spending.

For the full year, the economy grew by 2.1pc following 5.9pc growth in 2021, the year of the post-Covid-19 rebound. The economy shrank by 2.8pc in 2020 on a brief Covid-induced recession.

The increase in gross domestic product in the fourth quarter reflected gains in private inventory investment, consumer spending, federal and state spending and nonresidential spending that were partially offset by decreases in residential investment and net exports.

Consumer spending growth slowed to a 2.1pc rate in the fourth quarter from 2.3pc in the third quarter.

Fixed investment spending fell at a 6.7pc annual rate in the fourth quarter, with residential investment down by 26.7pc, reflecting the hit to housing from the most aggressive Fed rate increases since the 1980s.

Federal spending rose at an annual 6.2pc rate and state and local spending rose by 2.3pc. Exports fell by 1.3pc while imports fell at a 4.6pc annual rate in the fourth quarter.

By Robert Willis