The U.S. economy expanded by more than 3 percent in the fourth quarter of 2023, topping economists’ expectations and ending the year on a high note.
In the year’s final three months, the growth rate for the gross domestic product (GDP)—a measure of goods and services produced for sale in the United States—was 3.3 percent, down from 4.9 percent in the third quarter but above the consensus estimate of 2 percent, according to the Bureau of Economic Analysis (BEA).
Overall, the U.S. economy grew by 2.5 percent in 2023, up from 1.9 percent in 2022.
Consumer and government spending accounted for much of the economic growth in the fourth quarter.
Personal consumption expenditures ballooned by 2.8 percent, with goods and services spending rising by 3.8 percent and 2.4 percent, respectively. Real consumer spending slowed from 3.1 percent. This category also added 1.91 percent to the final reading, representing 57 percent of GDP growth.
Private domestic investment clocked in at a tepid 2.1 percent. However, this was offset by government spending that surged by 3.3 percent, including a 2.5 percent increase federally and a 3.7 percent jump at the state and local levels.
Government spending contributed close to 0.6 percent of the GDP print in the last quarter, accounting for roughly one-fifth of economic growth. Gross private domestic investment contributed 0.38 percent.
Exports rocketed by 6.3 percent, while imports edged up by 1.9 percent. Net exports of goods and services made up 0.43 percent of the GDP reading.
Heading into the fourth quarter GDP report, economists and regional central banks anticipated a 2 percent reading.
In the rest of the BEA report, real (inflation-adjusted) disposable personal income advanced by 2.5 percent, up from 0.3 percent in the third quarter. Personal savings fell to 4 percent in the last quarter, down from 4.2 percent.
Market Reaction
The financial markets did not have much reaction to the GDP data in pre-market trading, with the leading benchmark indexes flat.U.S. Treasury yields were red across the board, including the benchmark 10-year yield that slumped below 4.15 percent.
Looking to Q1
The consensus among economists is that the U.S. economy could begin to decelerate and start to slow down in the first quarter.Market observers believe that the largest contributing factor to a cooling economic landscape this year will be consumers putting a lid on their spending, whether because of the lagged effects of tighter financial conditions or a slowing labor market.
If these prognostications are accurate, it would be a dramatic shift from a year ago, as many experts purport that a resilient consumer kept the economy afloat.
The immense debt accumulation that accelerated last year could catch up with U.S. shoppers, particularly as credit card interest rates hover near record highs of above 20 percent.
A drawdown in COVID-19-pandemic-era savings has diminished households’ cushions. The personal savings rate is about 4 percent, while the net savings rate as a percentage of gross domestic income has been in negative territory for three straight quarters.
A recent Bankrate survey found that less than half of Americans (44 percent) say they could afford a $1,000 emergency expense from their savings. Nearly two-thirds (63 percent) note that inflation has been the most significant culprit for a paucity of savings.
“All too many Americans continue to walk on thin ice, financially speaking, with fewer than half indicating they would pay an emergency expense of $1,000 or more from savings,” Bankrate Senior Economic Analyst Mark Hamrick said in a statement. “Inflation has been a key culprit standing in the way of further progress on the savings front. Fortunately, rising interest rates have also provided more generous returns on savings.”
Despite gloomy forecasts for the first quarter, early estimates suggest robust growth. The New York Fed Staff Nowcast estimates a 2.4 percent expansion in the January-to-March span.
Should the U.S. economy hold steady, economists believe that this could afford the monetary authorities more room to keep interest rates higher for longer.
Fed policy rate expectations have been shifting as of late.
State of Bidenomics
The White House has been touting the enormous shift in consumer sentiment, pointing to the substantial increase in the University of Michigan’s Consumer Sentiment Index, climbing this month to its highest level since July 2021.“Our plan is delivering for the American people, building an economy from the middle out and the bottom up, not the top down,” President Biden told a United Auto Workers (UAW) conference in Washington on Jan. 24.
But while the current administration champions recent data, the numbers are not translating to higher poll numbers.
Regardless of everything happening in the United States and around the world, the economy still takes precedence for voters, according to Dan McMillan, an author and founder and executive director of Save Democracy in America.
“Performance on the economy is probably the single biggest issue that voters typically vote on,” he told The Epoch Times. “We’re seeing more signs of confidence. It’s a long way until November, and all these economic indicators seem to be heading in the right direction, so that picture may change for Biden.”