The U.S. economy likely maintained a strong pace of growth in the fourth quarter as consumers boosted spending on goods, but momentum appears to have slowed considerably towards the end of the year, with higher interest rates eroding demand.
The Commerce Department's advance fourth-quarter gross domestic product report on Thursday could mark the last quarter of solid growth before the lagged effects of the Federal Reserve's fastest monetary policy tightening cycle since the 1980s kick in. Most economists expect a recession by the second half of the year, though mild compared to previous downturns.
According to a Reuters survey of economists, GDP growth likely increased at a 2.6% annualized rate last quarter after accelerating at a 3.2% pace in the third quarter. Estimates ranged from a 1.1% rate to a 3.7% pace.Growth for the full year is expected to come in at around 2.1%, down from the 5.9% logged in 2021. The Fed last year raised its policy rate by 425 basis points from near zero to a 4.25%-4.50% range, the highest since late 2007.
Economic growth also likely received a lift from business spending on equipment, intellectual property and nonresidential structures. But with demand for goods tanking, business spending also lost some luster as the fourth quarter ended. Indeed, with demand for goods slumping, factory production has declined sharply for two straight months. Job cuts in the technology industry were also seen as flagging cutbacks in capital spending by businesses.
Trade, which accounted for the bulk of GDP growth in the third quarter, was seen either making a small contribution or subtracting from GDP growth. Strong growth is expected from government spending.
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