The US economy demonstrated robust growth in the final quarter of 2023, surpassing expectations and delivering a boost to President Joe Biden as he embarks on reelection campaigning.
According to government data released on Thursday by the Commerce Department, the world’s largest economy expanded at an annualized rate of 3.3 percent in Q4, driven by a resilient job market and strong consumer spending. Comparatively, year-on-year growth for the fourth quarter stood at an impressive 3.1 percent. Furthermore, the full-year growth rate accelerated to 2.5 percent, a notable improvement from 1.9 percent in 2022.
President Biden, eager to highlight his administration’s success in controlling costs while stimulating investments, expressed his satisfaction with the news. In a statement, he pointed out that wages, wealth, and employment have all surpassed pre-pandemic levels. Despite acknowledging the ongoing challenge of reducing prices, Biden sees the positive economic trajectory as a testament to his administration’s efforts to foster growth.
The latest data adds weight to the optimism surrounding the notion of a “soft landing” for the United States, wherein inflation recedes due to higher interest rates without triggering a detrimental recession. The Commerce Department attributed the fourth-quarter GDP surge to increases in consumer spending, exports, and state and local government expenditures. Analysts, who initially predicted a slowdown in consumer spending, were pleasantly surprised by the sustained strength of the labor market, contributing to robust job and wage gains.
While the economy has exhibited resilience, cautionary notes persist. Nationwide Chief Economist Kathy Bostjancic highlighted that economic growth has outpaced expectations, largely due to the unanticipated strength in the labor market. Despite this resilience, certain sectors have witnessed weakened employment growth, and interest rates remain elevated. Oxford Economics’ Bernard Yaros expects growth in 2024 but anticipates a deceleration, emphasizing the crucial role of a stable labor market in sustaining consumer-driven expansion.
Looking ahead, experts anticipate residential investment to become a key growth factor. With the Federal Reserve expected to lower interest rates and homebuilders poised to capitalize on reduced mortgage rates and a stabilizing existing-home market, the housing sector is poised for recovery. Pantheon Macroeconomics Chief Economist Ian Shepherdson predicts a moderate slowdown in first-quarter GDP but dismisses concerns of an imminent economic downturn, citing signs of recovery in the interest-rate-sensitive housing sector.
Although the Fed’s long-term GDP growth projection remains at 1.8 percent, analysts suggest that the latest data might prompt policymakers to consider rate cuts as early as May or June, with inflation emerging as a crucial factor influencing their decisions. Navy Federal Credit Union Corporate Economist Robert Frick anticipates “good growth with low inflation,” providing the Federal Reserve room to implement the three rate cuts projected for the year.