The US economy likely slowed, but still posted solid growth in the fourth quarter

WASHINGTON (AP) — The US economy likely emerged from 2022 with a bang, posting decent growth in the face of painful inflation, high interest rates and growing concern that a recession could be months away.

Economists have estimated that gross domestic product, the broadest measure of economic output, grew at an annual rate of 2.3% from October to December, according to a survey of forecasters by data firm FactSet.

The Commerce Department will release the first of three estimates of fourth-quarter GDP growth at 8:30 am ET on Thursday.

Despite a likely second straight quarter of expansion, the economy is expected to slow and then slide into recession sometime in the next few months as ever-higher interest rates, engineered by the Federal Reserve, pass invoice. The Fed’s rate hikes have inflated borrowing costs for consumers and businesses, from mortgages to car loans and corporate credit.

The housing market, which is especially vulnerable to higher lending rates, has been hit hard: Existing home sales have fallen for 11 straight months. Housing investment plummeted at an annual rate of 27% from July to September.

And consumer spending, which powers about 70% of the entire economy, is likely to weaken in the coming months, along with the still-strong job market. The resilience of the labor market has been a big surprise. Last year, employers added 4.5 million jobs, second only to the 6.7 million added in 2021 in government records going back to 1940. And last month’s unemployment rate, 3, 5% coincided with a minimum of 53 years.

But the good times for American workers are unlikely to last. As higher rates make borrowing and spending more expensive throughout the economy, many consumers will spend less and employers are likely to hire less.

Last year, the Fed raised its benchmark rate seven times in unusually large increments to try to stem rising consumer prices. Another, albeit minor, rate hike from the Fed is expected next week.

The central bank has been responding to an inflation rate that remains stubbornly high even though it has been gradually declining. Year-on-year inflation reached a rate of 9.1% in June, the highest level in more than 40 years. It has cooled since then, to 6.5% in December, but is still well above the Fed’s 2% annual target.

Another threat to the economy this year has its roots in politics: House Republicans could refuse to raise the federal debt limit if the Biden administration rejects their demand for sweeping spending cuts. If the borrowing limit is not increased, the federal government will not be able to pay all of your obligations and could destroy your credit.

Moody’s Analytics estimates that the resulting turmoil could wipe out nearly 6 million American jobs in a recession similar to the devastating one that sparked the 2007-2009 financial crisis.

At the very least, the economy is likely to start the year on a firmer footing than it did in early 2022. Last year, the economy contracted at an annual rate of 1.6% from January to March and another 0.6% from April to June. Those two consecutive quarters of economic contraction raised fears that a recession could have begun.

But the economy regained strength over the summer, buoyed by resilient consumer spending and higher exports. It expanded at an unexpectedly strong annual pace of 3.2% from July to September.