• Real Gross Domestic Product  (RGDP) increased at a seasonally adjusted annual rate of 2.9 percent in the fourth quarter of 2022. Real GDP increased 2.1 percent in 2022.
• Residential fixed investment decreased by 10.7 percent in 2022 as new single-family construction and brokers’ commissions fell.
• Final sales to domestic purchasers rose only 0.8 percent in the fourth quarter – highlighting weakness in the domestic economy. For the year, final sales to domestic purchasers increased 1.7 percent compared to 6.7 percent in 2021.

Despite a sharp slowdown, the US economy grew in 2022. Real GDP increased 2.1 percent. The topline number is impressive given the challenges the US economy faced this year – the highest inflation in 40 years, and the Federal Reserve jumbo rate hikes to tame price pressures.

Residential fixed investment – consisting of purchases of private residential structures – new construction, improvements to housing units, brokers’ commissions on the sale of residential property and residential equipment fell by 10.7 percent in 2022.

What’s ahead for the US economy

Historically, declining new construction and slumping residential investment have each acted as early-warning indicators of an economic downturn. However, the decline in residential investment may stall as residential sales could be near the bottom. A record number of new units under construction are coming on the market in 2023 and many potential home buyers are likely waiting for affordability to improve. This is happening already, expectations of falling inflation and of a weaker US economy pulled down mortgage rates and mortgage applications increased.

Still, there are challenges ahead. In Q4, real GDP grew 2.9 percent. Much of that growth was driven by inventory accumulation and exports. However, when you strip out inventories and exports, final sales to domestic purchasers rose only 0.8 percent – highlighting weakness in the domestic economy. The change in private inventories is a measure of the value of the change in the physical volume of inventories – additions minus withdrawals – that businesses maintain to support their production and distribution activities. This simply won’t be there in the coming quarters.

Signs are everywhere that the US economy is slowing rapidly but decelerating inflation and a still somewhat strong labor market could support a very resilient US consumer.