By The U.S. economy experienced a slower yet solid growth in the final three months of 2023, according to economists’ predictions. While the fourth quarter’s seasonally adjusted annual rate of gross domestic product (GDP) is expected to be lower than the impressive 4.9% growth seen in the third quarter, it still marks a considerable acceleration compared to the 2.1% increase in the second quarter.
Economists surveyed by FactSet estimate a growth rate of 1.5% for the fourth quarter, while models like the Federal Reserve Bank of Atlanta’s GDPNow and the New York Fed Staff Nowcast predict a higher growth rate of 2.4%. These projections are based on recent positive economic data.
For the entire year, economists anticipate a growth rate of 2.4%, surpassing the 2.1% growth seen in 2022.
Factors contributing to the resilient U.S. economy include strong consumer spending driven by a tight labor market, higher-than-expected holiday spending, and robust balance sheets, as noted by BofA Securities economist Shruti Mishra.
Despite the challenges posed by high interest rates and inflation, American consumers have remained resilient. Consumer sentiment reached its highest reading since July 2021 at the beginning of January, according to the University of Michigan. Additionally, retail sales for December exceeded expectations, and December’s unemployment rate stood at a near-historic low of 3.7%.
Citi economist Veronica Clark expects consumption to continue being supported as long as the labor market remains healthy, forecasting a 2% growth rate for the fourth quarter.
While the overall outlook remains positive, there are some areas experiencing softening growth.
BofA Predicts Decline in Nonresidential Fixed Investments
According to Bank of America (BofA) analyst Mishra, there has likely been a slowdown in nonresidential fixed investments, such as commercial structures and equipment, in the last quarter. Earlier reports show that nonresidential fixed investments increased by 1.4% in the third quarter, a significant deceleration from the 7.4% growth achieved in the second quarter.
Housing Market Faces Challenges
Another area of concern highlighted by analyst Clark is the housing market. Clark notes that limited supply of homes available for purchase throughout the past year has adversely affected home sales. Additionally, higher mortgage rates in October further hindered sales in the fourth quarter.
Inflation Data to be Revealed in GDP Report
Investors eagerly anticipate the release of the GDP report to gain insights into fourth-quarter and full-year 2023 inflation. The core personal-consumption expenditures (PCE) price index, considered the Federal Reserve’s preferred inflation gauge due to its exclusion of volatile food and energy prices, remained at 2% during the third quarter.
The Federal Reserve has set a target inflation rate of 2%. On Friday, the Bureau of Economic Analysis is set to publish December’s PCE numbers. Experts expect core inflation to have increased by 3% year over year.
These estimates suggest that the Federal Reserve has effectively managed to control inflation without pushing the economy into a recession. Consequently, investors are optimistic about the possibility of the central bank decreasing interest rates. In fact, CME’s FedWatch Tool currently indicates that traders anticipate a rate cut during the May meeting.
Upcoming GDP Report and Economic Analysis
Scheduled for release at 8:30 a.m. Eastern time on Thursday, the GDP report is the first of three estimates to be published by the Bureau of Economic Analysis for the fourth quarter and full year. Subsequent estimates will be revealed in February and March.
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