By Sarah Chaney Cambon

U.S. economic growth cooled to a 2.9% annual rate in the fourth quarter, capping a year of high inflation and rising interest rates.

U.S. gross domestic product growth at the end of the year was down slightly from a 3.2% annual rate in the third quarter, the Commerce Department said Thursday. The three months from October to December capped a year of economic cool-down from a rapid pandemic rebound that fueled red-hot growth in 2021.

Economic output grew 1% in the fourth quarter of 2022 compared with a year earlier, the Commerce Department said. That compares with 5.7% growth in 2021 and 2.6% growth in 2019 ahead of the pandemic.

At least some of the 2022 slowdown reflected a return to a more normal pace of growth after output surged amid pandemic reopenings, fiscal stimulus and a waning pandemic the year before.

Consumers, the economy's main engine, spent at a solid pace of 2.1% in the final three months of last year. Business investment and government spending also contributed to growth last quarter.

Despite signs of resilience, many economists are concerned about the possibility of a U.S. recession this year. They expect the Federal Reserve's efforts to curb high inflation through rapid interest-rate increases will trigger broad spending cutbacks and job losses.

"Headwinds from the big jump in interest rates, consumers cutting back on discretionary spending and weak economies overseas were big problems for the U.S. in late 2022," said Bill Adams, chief economist for Comerica Bank. "I expect real GDP growth will likely turn negative in the first half of this year."

Recent surveys of U.S. purchasing managers found that higher interest rates and persistent inflation weighed on demand in January in the manufacturing and service sectors. Parts of the economy also showed signs of cooling at the end of last year. Retail sales fell last month at the sharpest pace of 2022, existing-home sales fell for the 11th straight month, and hiring and wage growth eased.

Write to Sarah Chaney Cambon at sarah.chaney@wsj.com


Corrections and Amplifications

This article was corrected at 9:07 a.m. ET because it incorrectly said U.S. gross domestic product at the end of the year was down slightly from a 3.2% annual rate in the third quarter. U.S. gross domestic product growth at the end of the year was down slightly from a 3.2% annual rate in the third quarter, the Commerce Department said Thursday.

(END) Dow Jones Newswires

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