The latest US GDP data will have pleased those who like to see the glass as half full. After all, 2.9% quarterly growth (seasonally adjusted at an annual rate, column f in the table) is a healthy increase in GDP, which only implies a mild slowdown compared to the third quarter growth of 3.2%. Moreover, the result was also better than the Bloomberg consensus of +2.6%. So far for the good news.




The ‘glass is half empty’ camp has an easier task to underpin its cautious view. About half of the increase in GDP reflects inventory rebuilding, with a contribution of 1.46 percentage points to growth (column j). Admittedly, this comes after a negative contribution in the previous two quarters, which makes it difficult to assess to what extent the latest data reflect an unexpected slowdown in demand leading to excess inventories. Personal consumption expenditures have also contributed approximately half of the GDP increase. At 1.42 percentage points, the contribution is in line with that in the previous two quarters. The bulk is coming from services. The contribution of durable goods spending has turned positive again -after two negative quarters- but remains very small (0.04 percentage points). The contribution of gross private domestic investment has also become positive again (0.27 percentage points), underpinned by investments in intellectual property products. Investments in structures had a negligible impact on GDP -after a negative contribution in the first three quarters- and residential investments continue to suffer from high mortgage rates and the drop in housing affordability. The negative contribution of 1.29 percentage points implies that in each quarter of 2022, residential investments have acted as a drag on growth. For the full year, they have shrunk 10.7% versus 2021 (column a). The contraction is even more spectacular when comparing the fourth quarter of 2022 with the same quarter of 2021: -19.3% (column b).

The same exercise for GDP and some of its components sheds light on the slowdown in the course of 2022: GDP only grew 1.0% (Q4/Q4), gross private domestic investment was down 4.6%, whereas exports growth was resilient (+5.3% versus +7.2% for the year 2022 as a whole). Import growth however slowed to +1.7% (+8.1% for the year), which paints a gloomy picture about domestic demand. This is illustrated in real final sales to private domestic demand, with a year-over-year growth rate that has slowed significantly (chart 1). Despite the resilience in the fourth quarter, the undercurrents are clearly negative, and they should be reinforced by the delayed effects of past rate hikes and the upcoming policy rate increases. Were it not for the strength of the labour market, the talk about recession risk would be even more intense.