The United States economy demonstrated what can be described as shocking resilience in the fourth quarter of last year.
During 2023, American consumers and businesses continued to spend in amounts that did not give rise to claims of essential reduction in economic activity. Against this background, expectations of a recession were suppressed.
Gross domestic product, an indicator of economic output, grew by 3.3% year-on-year from October to December 2023, seasonally adjusted for inflation. The relevant data was released by the United States Department of Commerce on Thursday, January 25. From July to September 2023, the specified figure increased by 4.9%. The growth in GDP for the whole of last year was 2.5%.
FactSet data shows that the increase in the American economy in the fourth quarter of 2023 exceeded 1.5%. This result meets the expectations of experts. The growth of the United States economy in the last months of 2023 was driven by factors such as consumer and government spending, business investment, export activities, and improved housing conditions.
Consumer spending in the United States increased by 2.8% in the fourth quarter of last year. These rates are slower than the 3.1% recorded in the period from July to September. American business expenses increased by 1.9% in the fourth quarter of 2023. In the period from July to September, this figure was 1.4%.
Scott Hoyt, senior director of Moody’s Analytics, suggests that the American economy will continue to perform well during 2024. According to the expert, consumers spend exactly as much as need to support broader economic growth.
So far, it is not clear how the United States GDP data for the fourth quarter of 2023 will affect the Fed’s interest rate policy shortly.
Christopher Waller, an influential central bank official, said in January that interest rate cuts would be delayed if economic activity, which he said appeared to have slowed, did not recover. Against this background, expectations are collapsing that the Fed will make the mentioned decision in March.
GDP data for the fourth quarter of 2023 is evidence that the American economy is at a fairly long distance from recession. Consumer sentiment in the United States is optimistic and shows no signs of anxiety or uncertainty, partly as a result of slowing inflation.
Clear signs of stability in the economic situation may improve the rating of US President Joe Biden in public opinion polls.
Experts and Fed officials expect that in the current year, economic growth in the United States will slow down compared to the pace observed in 2023, but will not contract. This means that the financial regulator still has the opportunity to beat inflation without massive job losses.
Lydia Boussour, senior economist at EY-Parthenon, says that a soft landing is the most likely outcome for the American economy in 2024, noting that such a scenario will remain realistic even if the probability of recession reaches 35%.
GDP data for the fourth quarter of 2023 signal steady economic growth and at the same time do not contain any signs of a resumption of inflation.
The Personal Consumption Expenditures price index excluding the cost of food and energy in the period from October to December 2023 remained stable at 2%. This result is in line with the Fed’s official target.
Representatives of the central bank said that they probably need to see the so-called below-trend growth to be sure of controlling inflation. The mechanism for slowing the growth in the cost of goods and services involves deliberately cooling the economy by raising interest rates, which are currently at a 23-year high.
Fed officials will hold a monetary policy meeting in Washington next week. It is expected that a decision will be made to keep interest rates at the current level.
As we have reported earlier, Goldman’s Jan Hatzius Sees US Soft Landing.