January 30, 2023 — GDP Slows Along with Consumer Spending


US GDP rose by 2.9 percent in the fourth quarter of 2022, down slightly from the 3.2 percent in Q3.  The slowdown marks a return to a more normal rate of growth after surging in 2021 after the pandemic. The economy is showing signs of weakening with retail sales falling last month as inflation slows and some companies are beginning to cut staff.

Consumer spending rose by 1.9 percent in Q4 2022, far below the 7.2 percent growth experienced in the fourth quarter of 2021, but in line with the growth seen at the end of 2019. The personal-consumptions index (PCE), the Fed’s preferred inflation measure, rose 5 percent in December from a year earlier, down from 5.5 percent in November. The Fed’s target is 2 percent. Even though the labor market has cooled a bit, unemployment remains at 3.5 percent, a half-century low.

Tin light of the above data, the Fed is expected to slow the interest-rate increases when it meets this week. A quarter-percentage point increase is likely, bringing the Fed Funds rate to a range between 4.5 and 4.75 percent. At the meeting, they will debate how much higher to raise rates this year.