(Bloomberg) — The US economy expanded at a slightly slower rate at the end of last year as a downward revision to inventories masked stronger household spending and investment. 

Gross domestic product rose at a revised 3.2% annualized pace in the fourth quarter, compared with a prior estimate of 3.3%. Consumer spending advanced at a 3% rate, faster than initially estimated, Bureau of Economic Analysis figures showed Wednesday. Inflation was revised higher. 

Last year the economy expanded 2.5%, marking an acceleration from 2022 and far outperforming the broader eurozone and Japan.

The economy last year ended up surprising many economists who expected the US would slip into a recession after aggressive Federal Reserve interest-rate hikes. Instead, a robust labor market supported consumer spending and kept the economy moving forward.   

While economists largely expect growth to cool somewhat this year as high borrowing costs restrain household demand and business investment, they still anticipate the US can avoid a downturn.

Inflation-adjusted final sales to private domestic purchasers, a key gauge of underlying demand, increased more than initially estimated.

“This all points to more domestic demand growth than previously thought and a hotter economy in general,” James Knightley, chief international economist at ING, said in a note.

The Fed’s preferred inflation metric — the personal consumption expenditures price index — rose at a 1.8% annual rate in the fourth quarter. Excluding food and energy, the gauge increased at a 2.1% pace, the Bureau of Economic Analysis report showed. Both were marginally higher than initially estimated.

Inventories subtracted 0.27 percentage point from GDP, compared with a slight boost in the initial fourth-quarter estimate. Personal consumption added 2 points. Spending was revised up on the back of more outlays for services.

A separate report out Wednesday showed the widest US merchandise-trade deficit in six months. The January shortfall reflected a pickup in imports.