The US gross domestic product (GDP) grew at a 3.4 per cent annualized rate in the fourth quarter (October-December 2023), up from 3.2 per cent estimates a month ago. Higher estimates of consumer spending, exports and business investment supported the economy during the quarter-under-review.
‘’The update primarily reflected upward revisions to consumer spending and non-residential fixed investment,” said the US Commerce Department in its latest report. But this was “partly offset by a downward revision to private inventory investment,” the report added.
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US Q4GDP-Key metrics
The Q4GDP growth however, was sequentially lower when compared to Q3GDP which was pegged at 4.9 per cent. The US government’s other main gauge of economic activity — gross domestic income (GDI) — rose 4.8 per cent in October-December 2023, the most in two years.
GDI measures income generated and costs incurred from producing goods and services, whereas GDP measures spending on such goods and services. Consumer spending — which accounts for two-thirds of GDP — rose at a 3.3 per cent rate amid stronger spending on health care and financial services, even as goods outlays were revised lower.
For all of 2023, the US economy — the world’s biggest — grew 2.5 per cent, up from 1.9 per cent in 2022. In the current January-March quarter, the economy is believed to be growing at a slower but still decent 2.1 per cent annual rate, according to a forecasting model issued by the Federal Reserve Bank of Atlanta.
US Fed to manage ‘soft landing’?
The US economy’s resilience over the past two years has repeatedly defied predictions that the record high borrowing rates by the US Federal Reserve to fight inflation would lead to a recession. Beginning in March 2022, the Fed hiked its benchmark rate 11 times, to a 23-year high, making borrowing much more expensive for businesses and households.
Yet the US economy has kept growing, and employers have kept hiring — at a robust average of 251,000 added jobs a month last year and 265,000 a month from December through February. At the same time, inflation has also steadily cooled down. After peaking at 9.1 per cent in June 2022, US inflation has dropped to 3.2 per cent, however it still remains above the Fed’s two per cent target.
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The combination of sturdy growth and easing inflation has raised hopes that the Fed can manage to achieve a “soft landing” by fully conquering inflation without triggering a recession. This was the Commerce Department’s third and final estimate of fourth-quarter GDP growth. The department will release the first estimate of January-March growth on April 25.
Heading into the long weekend, investors will now focus on the Personal Consumption Expenditures Price Index (PCE), the Fed’s preferred inflation gauge, which is due on Good Friday, when the US stock market will remain shut.
Analysts say that Friday’s PCE report will be more important than usual as it will show whether or not the previous inflation reports this year were temporary setbacks or a beginning of a new trend of higher-for-longer inflation.
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Published: 28 Mar 2024, 06:39 PM IST