The U.S. economy saw stronger-than-expected growth in the fourth quarter of 2023.
It grew an annualized 3.3% in Q4 of last year, a slight drop from the 4.9% expansion seen in the preceding quarter but above consensus expectations for the period, according to initial estimates from the Bureau of Economic Analysis (BEA).
“Today’s GDP report was better than expected,” wrote PNC chief economist Gus Faucher in an email to The Dallas Express. “Fourth-quarter growth was strong at 3.3% annualized, capping a good year. At the same time, inflation has slowed in 2023, with core PCE inflation, the Fed’s preferred inflation measure, right at their 2% objective for a second straight quarter.”
“Consumer spending continues to increase at a steady pace, business investment growth is good, the housing market is no longer a drag, the trade deficit declined, and government spending is a positive,” added Faucher.
Consumers, businesses, and the government all reported strong increases in spending during the quarter despite a deceleration in real GDP quarter over quarter.
Overall, Q4 growth reflected across-the-board increases in consumer spending, state and local government spending, nonresidential fixed investment, federal government spending, private inventory investment, and residential fixed investment.
However, compared to the previous quarter, Q4 saw slowdowns in private inventory investment, federal government spending, residential fixed investment, and consumer spending.
Despite the quarter-over-quarter deceleration, Faucher suggested Q4’s strong GDP data “complicates” future policy decisions for the Federal Reserve.
“After raising interest rates aggressively in 2022 and most of 2023, the Fed was hoping that the economy would grow at a pace of somewhat below 2% — what FOMC participants think is consistent with 2% inflation over the long run. Instead, growth accelerated in 2023, to well above the economy’s long-term potential,” Faucher wrote.
In total, real GDP rose 2.5% for the full year of 2023 compared to 1.9% the year prior, indicating that the Federal Reserve’s interest-rate cycle had less of an effect on the U.S. economy in 2023 than was initially anticipated, particularly as strong consumer spending persisted throughout the year.
BEA will release its second estimate for Q4 GDP on February 28, 2024.
