- DP, a measure of all the goods and services produced, increased at a 3.3% annualized rate in the fourth quarter of 2023. Wall Street had been looking for a 2% gain.
- The U.S. economy for all of 2023 accelerated at a 2.5% annualized pace, well ahead of the Wall Street outlook at the beginning of the year for few if any gains and better than the 1.9% increase in 2022.
- A strong pace of consumer spending helped drive the expansion, as did government spending.
- There also was progress on inflation. Core prices for personal consumption expenditures rose 2% for the period, while the headline rate was 1.7%.
The economy grew at a much more rapid pace than expected while inflation eased in the final three months of 2023, as the U.S. easily skirted a recession that many forecasters had thought was inevitable, the Commerce Department reported Thursday.
Gross domestic product, a measure of all the goods and services produced, increased at a 3.3% annualized rate in the fourth quarter of 2023, according to data adjusted seasonally and for inflation.
That compared with the Wall Street consensus estimate for a gain of 2% in the final three months of the year. The third quarter grew at a 4.9% pace.
In addition to the better than expected GDP move, there also was some progress on inflation.
Core prices for personal consumption expenditures, which the Federal Reserve prefers as a longer-term inflation measure, rose 2% for the period, while the headline rate was 1.7%.
On an annual basis, the PCE price index rose 2.7%, down from 5.9% a year ago, while the core figure excluding food and energy posted a 3.2% increase annually, compared with 5.1%.
The two components together added up to “supersonic Goldilocks, because it’s really a strong number yet inflation hasn’t shown up,” said Beth Ann Bovino, chief economist at U.S. Bank. “Everybody wanted to have fun. People bought new cars, a lot of recreation spending as well as taking trips. We’ve been expecting a soft landing for some time. This is just one step in that direction.”
The U.S. economy for all of 2023 accelerated at a 2.5% annualized pace, well ahead of the Wall Street outlook at the beginning of the year for few if any gains and better than the 1.9% increase in 2022.
As had been the case through the year, a strong pace of consumer spending helped drive the expansion. Personal consumption expenditures increased 2.8% for the quarter, down just slightly from the previous period.
State and local government spending also contributed, up 3.7%, as did a 2.5% increase in federal government expenditures. Gross private domestic investment rose 2.1%, another significant factor for the robust quarter.
The chain-weighted price index, which accounts for prices as well as changes in consumer behavior, increased 1.5% for the quarter, down sharply from 3.3% in the previous period and below the Wall Street estimate for a 2.5% acceleration.
“This year has been like Rock ‘Em Sock ‘Em Robots, and the economy is knocking the blocks off the economists, always outperforming,” said Dan North, senior economist with Allianz Trade Americas. Fed Chair Jerome Powell “has got to have a smirk on his face this morning. Again, he’s defying the economists’ predictions with strong growth and inflation clearly coming under control.”
Markets showed only a modest reaction to the report. Stock futures gained slightly while Treasury yields moved lower. Futures markets continued to reflect the likelihood that the Fed will enact its first rate cut in May, though the CME Group’s FedWatch gauge put the odds of a March cut at 47.4% around 10 a.m. ET.
“It was a great report, but you didn’t see the market move much because GDP is backward-looking. It told us what happened in October and November and December,” North said. “It’s great for historical patterns, but it doesn’t really tell us much about where we’re headed.”
In other economic news Thursday, initial jobless claims totaled 214,000, an increase of 25,000 from the previous week and ahead of the estimate for 199,000, according to the Labor Department. Continuing claims rose to 1.833 million, an increase of 27,000.
The GDP report wraps up a year in which most economists were almost certain the U.S. would enter at least a shallow recession. Even the Fed had predicted a mild contraction due to banking industry stress last March.
However, a resilient consumer and a powerful labor market helped propel the economy through the year, which also featured an ongoing pullback in manufacturing and a Fed that kept raising interest rates in its battle to bring down inflation.