February 23, 2023


The revised estimate of fourth quarter GDP growth was 2.7% compared to a preliminary estimate of 2.9% which compares to a 3.2% growth rate in the third quarter.

Final sales, which is GDP excluding the change in business inventories, rose 1.2% in the fourth quarter after having jumped 4.5% in the third quarter.   Given an increase in GDP of 2.7% and a 1.2% increase in final sales, it means that the increase in inventories added 1.5% to GDP growth in the fourth quarter.

Final sales to domestic purchasers which excludes both the change in inventories and trade rose 0.7% in the fourth quarter after having climbed 1.5% in the third quarter.  Given that final sales rose 1.2% in the fourth quarter while final sales to domestic  purchasers rose 0.7%, then trade added 0.5% to GDP growth in the fourth quarter.as the deficit for net exports narrowed with exports declining 1.6% while imports fell by 4.2%.

Consumption spending rose 1.4% in the fourth quarter after climbing 2.3% in the third quarter.  Consumers continue to spend at a moderate pace despite higher interest rates and surging inflation.  Spending on goods  fell 0.5% in the fourth quarter.  Spending on services climbed by a 2.4% as noteworthy gains were reported in numerous categories.

Nonresidential investment rose 3.3% in the fourth quarter after climbing 6.2% in the third quarter. Spending on structures rose by 8.5%.  Equipment spending fell 3.2%.   In today’s world firms need to invest in technology that will allow them to survive difficult times, and/or help them expand their production and delivery functions to meet surging demand.  Intellectual property climbed 7.4% in the fourth quarter after rising 6.8% in the third quarter.    In the past four quarters spending on intellectual property has risen 8.5%.  Intellectual property spending should continue to climb rapidly.

Residential investment plunged by 25.9% in the fourth quarter after falling 27.1% in the third quarter after diving 17.8% in the second quarter  Housing is taking the brunt thus far of higher mortgage rates and soaring home prices.  However with mortgage rates having recently fallen from 7.0% to 6.3% and home prices declining rapidly, it is likely that this sector hit bottom in the fourth quarter.

The foreign sector as measured by the deficit for real net exports narrowed by $30 billion in the fourth quarter to $1,238.4 billion after narrowing by $162 billion in the third quarter.  Exports fell 1.6% in the fourth quarter while imports sank by 4.2%.

.Federal government spending rose 5.9% in the fourth quarter after gaining 3.7% in the third quarter.  Defense spending rose 2.2%, while non-defense spending rose 10.8%.

We expect GDP to expand at a slow but positive pace of 1.4% in 2023..  The economy keeps cranking out jobs and wages keep rising which will boost consumer income and spending.  Real interest rates remain negative so they will continue to boost the economy.  Housing has been hit hard  but with home prices falling rapidly it should soon begin to rise.  The economy will continue to chug along at a slow pace until such time as the Fed boosts the funds rate above the inflation rate.

Stephen Slifer


Charleston, SC