STORY: The U.S. economy grew faster than expected in the fourth quarter, but that likely exaggerates the nation's health as a measure of domestic demand rose at its slowest pace in 2-1/2 years, reflecting the impact of higher borrowing costs.
The Commerce Department's advance fourth-quarter gross domestic product report on Thursday showed half of the boost to growth came from a sharp rise in inventory held by businesses, some of which is likely unwanted.
While consumer spending maintained a solid pace of growth, a big chunk of the increase in consumption was early in the fourth quarter. Retail sales weakened sharply in November and December. Business spending on equipment contracted last quarter and is likely to remain on the backfoot as demand for goods softens.
It could be the last quarter of solid GDP growth before the lagged effects of the Federal Reserve's fastest monetary policy tightening cycle since the 1980s are fully felt. Most economists expect a recession by the second half of the year, though a short and mild one compared to previous downturns, because of extraordinary labor market strength.