The economy grew 2.1% in 2022, the Bureau of Economic Analysis reported Thursday, a year marked first by recession fears and then by the largest burst of inflation in decades, which prompted a frantic campaign by the Federal Reserve to ease price pressures through interest rate hikes.
The numbers, adjusted for inflation, were driven by GDP growth in the second half of the year after the first half saw a contraction that led many to say that the economy had fallen into recession on President Joe Biden‘s watch. GDP growth for the fourth quarter clocked in at a 2.9% annual rate, the bureau said.
Last year’s GDP growth follows 2021’s gangbuster 5.9% GDP growth, which was so unusually high because it marked a year of reopening from the pandemic.
EXISTING HOME SALES HAVE WORST DECEMBER SINCE THE HOUSING CRASH IN 2008
Some details of Thursday’s report, though, suggest that underlying growth in the quarter was not as strong as the headline number made it out to be. Business additions of inventories, which is not indicative of future growth, boosted the headline growth rate by a full 1.46 percentage points. Meanwhile, business investment slowed, as did household spending. Housing construction cratered at nearly a 27% annual rate as the Fed’s rate hikes take a massive toll on home buying and construction.
“Sure the economy returned to positive growth in the second half of 2022 after declining in the first half of 2022, but for how long can the growth continue if consumers don’t return to the malls and businesses delay ordering up more equipment,” wrote Christopher Rupkey, the chief economist of FWDBONDS.
Still, Friday’s report shows that economic growth held up in 2022 despite a range of headwinds. The decline in GDP in the first two quarters, a situation commonly used to define a recession, raised fears that the situation was deteriorating. Measures of consumer sentiment declined earlier in the year, adding to the sense that a broad downturn was in store.
But the contractions in headline GDP might have masked underlying strength. The labor market has remained resilient, even in the later months of 2022. The economy notched 223,000 jobs in December, the Bureau of Labor Statistics reported this month — a strong performance that shows commerce is holding up despite several headwinds. The last time unemployment was this low was right before the pandemic took hold back in 2020.
Still, the most notable economic trend of 2022 was the rise of inflation, which lowered the standards of living for many households. Bringing inflation down to normal levels may still involve recession. Inflation stood at 6.5% for the year ending in December, according to the consumer price index, far above the Fed’s target, which is roughly 2%.
Some economists fear that 2023 will not prove to be as bright as the Fed’s efforts to bring down inflation through rate hikes filter through the broader economy and start causing GDP decline and job loss.
Most economists predict that there will end up being at least a mild recession this coming year.
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
Last week, the World Economic Forum, which held its annual meeting in Switzerland, announced that nearly two-thirds of chief economists surveyed now expect a recession in the coming year. Additionally, the share of economists saying a recession is “extremely likely” has more than doubled since September.
Business and academic economists surveyed by the Wall Street Journal assign a 61% probability of the economy falling into a recession over the next 12 months, according to data released last week. That is little changed from the 63% who said the same back in October.
