The U.S. Commerce Department's Bureau of Economic Analysis released its advance estimate of gross domestic product for the fourth quarter on Thursday, revealing that the economy grew at an annualized rate of 2.9 percent last quarter.
The BEA release shows consumer spending grew at a 2.1 percent rate, mostly due to a rebound in goods spending, mainly on motor vehicles. Additionally, consumers spent on healthcare, housing, utilities and personal care.
Despite solid growth in consumer spending, most of the growth was early in the fourth quarter, as November and December saw a sharp decline in retail sales. Consequently, as the demand for goods weakens, businesses will likely continue to reduce their expenditures on equipment.
Additionally, there was a decline in the demand for long-lasting manufactured goods, which are mostly purchased on credit, primarily due to a slump in household savings.
As a result, inventories increased to $129.9 billion compared to $38.7 billion in the previous quarter, contributing 1.46 percentage points to GDP growth.
The housing market appears to stabilize even though residential investment fell for the seventh consecutive quarter. With the Fed slowing its rate hikes, mortgage rates have been trending lower.
In spite of slower growth in many parts of the economy, the labor market showed no signs of a significant slowdown.
On Thursday, the Labor Department reported a 6,000 drop in state unemployment benefits claims, bringing them to 186,000 for the week ended January 21. In the week end7ing on January 14, the number of people receiving benefits after an initial period increased by 20,000 to 1.675 million.
Since the labor market has been robust, most economists expect a recession in the year's second half, but it will be a short and mild recession compared to previous ones. Some economists also say it'll be a rolling recession rather than an outright downturn.
Due to technological advances and transparency by the U.S. central bank, economists argue that monetary policy now acts more quickly than before, resulting in financial markets and the real economy acting in anticipation of rate increases.
Market closes green following GDP data
Despite weaker demand for goods in the fourth quarter, the U.S. economy performed better than analysts expected. This is a mixed blessing for investors, as it could encourage the Federal Reserve to maintain restrictive interest rates indefinitely.
According to analysts, Q4 earnings are expected to decline 2.7 percent year-over-year, worse than the 1.6 percent decline seen on January 1 but better than the three percent decline as of Wednesday.
Over one-fourth of the companies in the S&P 500 have reported Q4 earnings. Among those, 69 percent exceeded expectations, up from 67 percent on Wednesday.
There were index gains of 0.61 percent on the Dow Jones Industrial Average, 1.10 percent on the S&P 500 and 1.76 percent on the Nasdaq Composite.
Tesla contributed heavily to the S&P 500 and the Nasdaq, with its shares rising 11.0 percent following its earnings report.
Oil major Chevron announced it would triple its share buyback budget, sending its stock up 4.9 percent.
On the other hand, the stock of IBM fell 4.5 percent following the announcement that the company would cut jobs and sell assets after failing to meet its cash targets.
The share price of Bed Bath & Beyond Ink also dropped 22.2 percent after the company received a default notice from JPMorgan Chase.
According to reports, the volume on U.S. exchanges was 11.34 billion shares, higher than the 10.93 billion average over the last 20 trading days.