United States GDP Income and Expenditure Outlooks
The US economy grew by 2.1% in 2022 compared to 2021, following a 2.9% annualized quarter-over-quarter growth rate in the fourth quarter of the year. Economic growth slowed significantly this year compared to 2021 when it increased by 5.9% over 2020. Although consumption increased 2.1% in the fourth quarter of the year versus 2.3% in the third quarter, goods consumption rebounded from a 0.4% decline in the third quarter to a 1.1% increase in the fourth quarter of the year.
Meanwhile, gross private domestic investment increased by 1.4% in the fourth quarter after falling by 9.6% in the previous quarter. Nonresidential structure investment made up the gap in the fourth quarter, increasing by 0.4% after falling by 3.6% in the previous quarter. Importantly for the Federal Reserve and inflation, the GDP price index declined further in the fourth quarter, to 3.5% from 4.4% in the third quarter. The price index for GDP declined due to a slowing in the price index for personal consumption expenditures (PCE), which dropped to 3.2% during the quarter after growing at a rate of 4.3% the previous quarter.
This slowing in the PCE price index was caused by a 1.5% drop in the price of goods, with durable goods falling 3.1% and nondurable goods falling 0.5%. However, service costs continued to rise at a little faster rate than in the third quarter. Services prices rose 5.6% in the fourth quarter of the year, compared to 5.2% in the previous quarter.
Personal income and expenditures revealed that the American consumer spent all of their money in October and very little in the remaining months of the year. In reality, both nominal and real consumption expenditures (PCE) fell in November and December, despite a fairly good reading in October. That is, the whole fourth-quarter consumption happened in the first month of that quarter. This suggests that the New Year will begin on a negative note in terms of consumption expenditures, i.e., the American consumer.
The not-so-bad news was that disposable personal income, both nominal and real, remained positive throughout the quarter, implying that the personal savings rate, or savings as a percentage of disposable personal income, increased during the quarter after falling to its lowest level since 2005 in September of 2022. Personal savings climbed from 2.4% in September 2022 to 3.4% in December 2022. Even with the robust increase in the fourth quarter, today's data on personal income and expenditures provide greater insight into the health of the US economy at the end of 2022.
Before we get into what has occurred to egg pricing in the previous year or two, let's define some terms. Inflation is not assessed by the price of a single item. Inflation is defined as a widespread increase in the price level. Inflation does not imply that all prices are rising at the same time. Inflation indicates that some prices increased, while others decreased, and that some prices remained unchanged. However, when all prices were added up and averaged out across the economy, prices climbed overall.
Furthermore, certain prices are more significant than others since they demand a bigger proportion of money. That is, an increase in the price of pencils is less harmful than an increase in the price of rent, for example. At the same time, if the price of one thing rises too quickly, we may be able to avoid purchasing it so that increased prices do not affect us. However, there are some commodities that we must consume and cannot avoid, at least in the short to medium term.