The U.S. economy fared better than expected at the end of last year, despite higher borrowing costs and the rising cost of living weighing on activity. The economy grew at an annual rate of 2.9% in the last three months of 2022, the U.S. Commerce Department said. That was down from 3.2% in the prior quarter, as housing activity tumbled.

In December, normally a big month for consumer spending, retail sales dropped 1.1% from a month earlier. Manufacturing has also suffered, while the stock market dropped sharply last year.

Thursday's report showed housing investment – which is sensitive to interest rates – falling at an annual rate of nearly 27% in the three months to December, driven by declines in the construction of new homes. For the full year, the U.S. economy grew by 2.1%. That was down from last year, when the economy roared back to life after the pandemic, expanding by 5.9% – the fastest rate since 1984.