The U.S. economy expanded at a robust 3.2% annual pace from October through December, driven by strong consumer spending, according to the latest report from the Commerce Department. This figure represents a slight downgrade from the initial estimate but still reflects a healthy growth rate.
The fourth-quarter GDP growth of 3.2% follows a red-hot 4.9% growth rate in the previous quarter. Despite the slight revision from the initial 3.3% estimate, the U.S. economy has now achieved over 2% growth for six consecutive quarters, defying concerns of a potential recession amid high interest rates.
For the entire year of 2023, the U.S. economy grew by 2.5%, surpassing the 1.9% growth recorded in 2022. Consumer spending, which accounts for about 70% of economic activity, expanded at a 3% annual pace in the fourth quarter. Additionally, spending by state and local governments saw a notable increase, rising at a 5.4% annual rate, the fastest pace since 2019. The growth in exports also contributed positively to the fourth-quarter GDP numbers.
The report also highlighted a moderation in inflation pressures, with the personal consumption expenditures price index rising at a 1.8% annual rate in the fourth quarter, down from 2.6% in the previous quarter. Core inflation, which excludes volatile food and energy prices, increased slightly to 2.1% from 2% in the third quarter.
Looking ahead, the International Monetary Fund projects the U.S. economy to expand by 2.1% in 2024, outpacing growth forecasts for other major advanced economies. Despite concerns over high prices, inflation has eased in recent months, with consumer prices up by 3.1% from January 2023, down from a peak of 9.1% in June 2022.
The Federal Reserve's efforts to combat inflation through multiple interest rate hikes have so far been successful, with consumer prices showing signs of stabilization. The strong job market, with unemployment below 4% for 24 consecutive months, has supported consumer spending and overall economic growth.
Businesses have also enhanced productivity through automation and efficiency improvements, contributing to the positive economic outlook. The combination of easing inflation, robust hiring, and steady GDP growth has raised hopes for a smooth economic transition without triggering a recession.
Analysts anticipate further rate cuts by the Fed later in the year to support economic growth. The final revision of the fourth-quarter GDP figures is scheduled for release on March 28.
