The fourth quarter of last year saw the US economy grow at a rate faster than expected, but this is an exaggeration of the health of the nation.
This is due to the fact that domestic demand increased at its slowest pace in two and a half years, which showed the impact higher costs of borrowing have had.
On Thursday, the Commerce Department posted its advance report on the gross domestic product (GDP) for the fourth quarter.
It showed that inventory held by businesses had seen a sharp increase, which was responsible for half of the boost, but some of this inventory is expected to be unwanted.
While the pace of growth in consumer spending remained solid, a major portion of the increase in consumption had been recorded at the beginning of the fourth quarter.
Both November and December saw a sharp decline in retail sales. The last quarter also saw a contraction in business spending on equipment.
With the softening demand for goods, it is expected to stay on the back foot. In addition, this quarter could be the last one to report solid growth in the gross domestic product (GDP).
This is because the economy would soon begin to see the impact of the tightening cycle of the monetary policy by the US Federal Reserve, which is the fastest one to be seen since the 1980s.
A number of economists believe that the second half of the year would bring an economic recession, but they expect it to be a mild and short one as opposed to previous ones due to the extraordinary strength of the labor market.
Market analysts said that while the US economy had not fallen off a cliff, it was gradually losing its stamina, so they could see a contraction in this year.
Therefore, it is likely that the US Fed will limit itself to two small hikes in the interest rate in the next few months.
The last quarter saw an annualized increase of 2.9% in GDP, while the growth in the third quarter stood at 3.2%. Economists had expected a 2.6% increase.
The first half of the year had seen a contraction of 1.1% happen, but it was erased by robust growth in the second half.
There was a 2.1% expansion in the economy in 2022, which was a drop from 2021 when it had been 5.9%.
Last year, the Federal Reserve hiked its interest rate by a total of 425 basis points, from almost zero to a range of 4.25% to 4.50%, which makes it the highest rate is seen since 2007.
There was also a growth in consumer spending by 2.1%, which reflected a rebound in strong spending early in the quarter, most of which had been on motor vehicles.
Other areas where spending was heavy included healthcare, utilities, housing, and personal care. The third quarter had seen spending grow by 2.3%.
It is mostly due to the savings that people were able to accumulate during COVID-19 and the resilience of the labor market.