The U.S. economy exhibited strong growth in the fourth quarter, driven by robust consumer spending, although there’s evidence of a slowdown as the new year begins. The Commerce Department’s Bureau of Economic Analysis reported a 3.2% annualized growth rate in GDP for the last quarter, a slight adjustment from the initially reported 3.3%. This revision, primarily due to a decrease in private inventory investment, was unexpected by economists who had anticipated the figure would remain unchanged.
Inflation remained relatively subdued during the same period, with a minor upward revision from earlier estimates. Following a vigorous 4.9% growth rate in the third quarter, the economy expanded by 2.5% in 2023, marking an increase from 1.9% in 2022. This growth rate surpasses the Federal Reserve’s 1.8% benchmark for non-inflationary expansion.
However, recent indicators suggest a loss of momentum. Key economic activities, including retail sales, housing starts, and factory production, saw declines in January. Some analysts attribute this dip to January’s severe cold snaps and the challenges of adjusting data for seasonal variations at the year’s outset. Despite this, economists are not predicting a recession.
The financial markets have adjusted their expectations for the Federal Reserve, now anticipating interest rate cuts to commence in June rather than May. Since March 2022, the Fed has increased its policy rate by a total of 525 basis points, reaching a current level of 5.25%-5.50%.