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Economic Report: U.S. grew 7% in 4th quarter, GDP shows, but economy enters more uncertain period

The numbers: The U.S. economy grew at slightly faster 7% annual pace in the fourth quarter, updated figures show, as Americans boosted spending and businesses rebuilt their stockpile of goods after inventories fell to very low levels.

Economists polled by The Wall Street Journal had forecast gross domestic product in the fourth quarter to be revised up to 7%. GDP grew a slower 2.3% in the third quarter.

The surge in the U.S. economy at the end of last year hasn’t carried over into 2022, however. Omicron blitzed the U.S. in January and consumers cut back. The U.S. is forecast to expand by less than 2% in the first quarter.

The figures are adjusted for inflation.

Big picture: The U.S. economy appears to have entered a more turbulent period after a speedy recovery from the pandemic.

The cost of borrowing is climbing as the Federal Reserve prepares to raise interest rates for the first time in four years. Inflation has soared to a 40-year high. And ongoing shortages of labor and supplies have handcuffed the ability of businesses to produce enough goods and services to meet customer demand.

if that’s not all, the Russian invasion of Ukraine has unsettled financial markets and is pushing already high oil prices even higher.

Most economists predict the U.S. will still grow a healthy 3% to 4% in 2022, but the outlook has become more uncertain.

Key details: Consumer spending, the main engine of the economy, increased at a revised 3.1% rate in the first quarter. Previously the government said outlays rose 3.3%.

The value of inventories surged by a revised $238 billion, just a toucher lower than previously estimated. Spending on inventories is a boost to GDP

Those were the two biggest contributors to U.S. economic growth at the end of last year. The government updates GDP twice after the initial report.

The most notable change in fourth-quarter GDP was a somewhat larger increase in business investment, especially housing. Residential spending rose 1% instead of declining 0.8% as initially reported.

The increase in outlays on equipment was also raised to 3.1% from 2%.

Most other figures were little changed. Government spending fell and the rate of inflation also rose at the fastest pace since 1982.

For all of 2022 GDP increased by 5.7%. That’s the largest gain since 1984.

Before the pandemic, the economy was growing around 2.3% a year.

Market reaction: The Dow Jones Industrial Average
DJIA,
-1.38%

and S&P 500
SPX,
-1.84%

were set to decline sharply in premarket trades after Russia launched a full-scale attack on Ukraine.

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