The pace of US economic growth slowed in the last three months of 2023, but far less than had been expected, underlining the continued resilience of the economy.
The commerce department reported on Thursday that US gross domestic product (GDP) – a broad measure of economic health – grew at an annualized rate of 3.3% in the final quarter of the year, down from 4.9% in the previous quarter but in line with pre-pandemic growth, and well ahead of the 2% economists had expected.
Robust consumer spending and government outlays contributed to the growth.
The Federal Reserve has been attempting to cool economic activity in order to bring down inflation. Since March 2022 the Fed has increased rates to a 22-year high and held them there. Inflation has fallen from a high of 9% in June 2022 to 3.4%.
The rate rises have increased the cost of borrowing and many – including the Fed – had expected a subsequent slowdown in economic activity to lead to layoffs. But so far the Fed appears to be on course for what it has termed a “soft landing”.
Hiring has remained robust – unemployment hovers at close to a 50-year low – and while growth has slowed, consumers have continued to spend, the US economy has weathered the rate rises and stock markets have hit record highs.
“The Fed – so far – has managed to strangle inflation without strangling the economy,” said Dan North, senior economist with Allianz Trade Americas. North said the Fed rate rises were still working their way through the economy and he expected 2024 to be a year of slow growth “but we are not using the recession word yet”.
Polling since the end of the pandemic shutdowns has consistently shown that consumers are pessimistic about the state of the economy. There are signs that the gloom may be lifting.
Last week the University of Michigan’s closely watched monthly consumer sentiment index rose 9.1 points to 78.8, its biggest monthly advance since 2005. “Consumer views were supported by confidence that inflation has turned a corner and strengthening income expectations,” said Joanne Hsu, the University of Michigan’s director of surveys.
