The economy of the United States grew at a surprisingly robust rate of 3.3% in the last quarter.
The economy of the United States experienced an unexpectedly strong growth of 3.3% annually during the months of October to December. This was due to Americans’ ongoing willingness to spend generously, despite facing high interest rates and prices that have caused frustration among many households.
According to the report released by the Commerce Department on Thursday, the gross domestic product, which measures the total production of goods and services in the economy, slowed down from its rapid growth rate of 4.9% in the previous quarter. However, the most recent data still shows the resilience of the world’s biggest economy, as it marks the sixth consecutive quarter of 2% or higher annual GDP growth.
Consumers, who account for about 70% of the total economy, drove the fourth-quarter growth. Their spending expanded at a 2.8% annual rate, for items ranging from clothing, furniture, recreational vehicles and other goods to services like hotels and restaurant meals.
The GDP report indicated that inflationary measures continued to decline, despite strong growth in the October-December quarter. Consumer prices rose at a rate of 1.7%, compared to 2.6% in the previous quarter. Core inflation, which excludes food and energy prices, was reported at an annual rate of 2%.
The inflation figures may bring comfort to the Federal Reserve’s decision-makers, as they have previously indicated their intention to decrease their main interest rate three times in 2024. This is a reversal of their previous plan from 2022-2023, where they aimed to significantly increase rates to combat inflation.
According to Paul Ashworth, the chief North America economist at Capital Economics, the fourth quarter saw a higher than anticipated growth in GDP, but there was a continued decrease in underlying inflation. As a result, it is still most probable that the Fed will make an early rate cut this spring.
The upcoming November elections may be influenced by the current state of the economy. Despite a prolonged period of pessimism, Americans are beginning to feel more optimistic about inflation and the economy. This shift in sentiment has the potential to boost consumer spending, drive economic growth, and potentially impact voters’ choices. According to the University of Michigan, their consumer sentiment index has seen its largest increase since 1991 over the past two months.
There is increasing hope that the Federal Reserve will successfully achieve a unique “soft landing” by maintaining high interest rates to moderate economic growth, employment, and inflation, without causing a severe downturn in the economy. Inflation reached a 40-year high in 2022 but has since gradually decreased without the expected job losses that economists predicted would be necessary to control the rise in prices.
The economy has consistently defied forecasts that the Federal Reserve’s forceful interest rate increases would lead to a downturn. Instead of declining, the economy actually gained momentum last year, growing by 2.5% compared to 1.9% in 2022.
Beth Ann Bovino, the chief economist at U.S. Bank, stated that our prediction is for a smooth decline and it appears that things are progressing in that direction. However, Bovino anticipates a slight slowdown in the economy this year as increased interest rates dampen borrowing and spending.
She stated that individuals will experience pressure.
One year ago, the future of the economy seemed much worse. In April 2023, the Conference Board, a business organization, predicted that there was a nearly 99% chance of a recession in the United States within the next 12 months.
Although inflation has decreased in the US, prices are still almost 17% higher than they were before the pandemic started three years ago. This has frustrated many Americans. This may be a deciding factor for voters in the upcoming presidential election, as they are still dealing with the lasting financial and emotional impact of the highest inflation rates in forty years. Will the significant drop in inflation be more influential or will the fact that prices are still significantly higher than three years ago have a greater impact on the election?
In March 2022, the Federal Reserve started increasing its key interest rate in reaction to the rise in inflation during the economic rebound from the pandemic-induced downturn. By the conclusion of its rate hikes in July of the previous year, the central bank had elevated its influential rate from nearly zero to approximately 5.4%, marking the highest level since 2001.
As the Federal Reserve’s increase in interest rates had an impact on the economy, the annual rate of inflation decreased from 9.1% in June 2022, which was the highest in forty years, to 3.4% as of last month. While this is a significant improvement, it still exceeds the Federal Reserve’s target of 2%.
The advancements thus far have been achieved with minimal economic impact. Companies have consistently created 225,000 new jobs per month for the past year. Additionally, the unemployment rate has stayed below 4% for 23 consecutive months, which is the longest stretch since the 1960s.
The job market, which was previously in high demand, has now cooled down, lessening the need for companies to increase wages in order to retain or hire new employees. This also means that companies will not have to raise prices for their customers due to higher labor costs.
It’s happened in perhaps the least painful way: Employers are generally posting fewer job openings rather than laying off workers. That is partly because many companies are reluctant to risk losing workers after having been caught flat-footed when the economy roared back from the brief but brutal 2020 pandemic recession.
According to Bovino, companies are eliminating available positions, but they are retaining their employees.
The economy’s resilience can also be attributed to the fact that consumers have come out of the pandemic in better financial standing than expected. This is partly due to the distribution of government stimulus checks to millions of households. As a result, many consumers have been able to maintain their spending habits despite increasing prices and interest rates.
A group of economists has proposed that the economy may decline in the upcoming months due to depleting pandemic savings, approaching credit card limits, and rising borrowing rates limiting spending. However, the government recently announced that consumers increased their purchases at retail stores in December, concluding the holiday shopping season on a positive note.