WASHINGTON: The US economy grew at a slower pace in 2022 but performed better than expected in the final months of last year, the Commerce Department said, as recession fears loomed.

Economic activity has been moderating as the US central bank hiked the benchmark lending rate seven times last year, in hopes of cooling demand and reining in costs as inflation surged.

The property sector has slumped, followed by declines in manufacturing and retail sales.

Against this backdrop, the world’s largest economy expanded 2.1 percent for all of 2022, down from the figure in 2021, according to Commerce Department data.

“The increase in real GDP in 2022 primarily reflected increases in consumer spending, exports,” and certain forms of investment, said the department in a statement.

For the October to December period, US gross domestic product exceeded expectations to rise at an annual rate of 2.9 percent.

This was slightly below the 3.2 percent jump in the third quarter last year, and marks a second straight quarter of growth after two rounds of contraction.

President Joe Biden cheered the “very good news about the American economy” Thursday, highlighting better-than-anticipated fourth quarter growth and resilience in the jobs market.

“We’re moving in the right direction. Now we’ve got to protect those gains… that our policies have generated,” he said in a speech in Virginia.

Slowing ‘sharply’

While the economy grew strongly in the fourth quarter, most of the advance took place early on and a repeat performance in early 2023 is unlikely, said Oren Klachkin of Oxford Economics.

Household spending and business investment remained positive in the final months last year but slowed, added Rubeela Farooqi of High Frequency Economics.

Inventories and net trade may have bolstered growth, but analysts caution that this cannot be relied upon in the new year.

Meanwhile, investment in the residential sector continued contracting, in the longest streak since the housing crisis, said Klachkin.

The interest-sensitive housing sector has been reeling as the Federal Reserve hiked rates, with mortgage rates remaining high and weighing on affordability.

“Looking ahead, recent data suggest that the pace of expansion could slow sharply in the first quarter, as the effects of restrictive monetary policy take hold,” Farooqi said.

A separate Commerce Department report released Thursday showed orders for big-ticket US manufactured goods were stronger than expected in December, though data indicated a weak ending to 2022 for business investment and equipment spending, she added.

A slowdown would be welcome news to the Fed and could open doors to a slower pace of rate increases ahead.

Growth engine to weaken

While unexpectedly resilient consumer spending supported growth last year, there are signs that this key engine is weakening as households draw down on their savings from the pandemic period.

This could point to more subdued expenditures ahead, economists say.

“Consumer spending — the economy’s main growth engine — is expected to weaken as income growth softens and households can no longer rely on excess savings to maintain their desired pace of spending,” Klachkin added.

“The economy is currently close to full employment so job growth is bound to slow,” he said.

The US could enter a recession in the second quarter as consumers limit their expenditures and businesses become more reluctant to hire and invest, Oxford Economics expects.

But others believe the country may yet avoid a recession, if the labor market remains strong and household balance sheets are healthy.

Even if households are eating into their funds due to inflation, “they’re coming from a very high point,” and this should alleviate or prevent a protracted downturn, according to Moody’s Analytics economist Matt Colyar.

Large-scale layoffs also appear hard to imagine for now as issues with labor supply is keeping firms hiring.

“It’s believable that the softness we’re seeing stays relatively contained,” Colyar said.