The US Economy Grew at a Surprisingly Strong 3.3% Pace Last Quarter, Pointing to Continued Resilience
WASHINGTON – The US economy exceeded expectations by growing at a brisk 3.3% annual pace in the fourth quarter of last year, despite high interest rates and frustrations surrounding price levels. The report from the Commerce Department revealed that while growth decelerated from the sizzling 4.9% growth rate the previous quarter, it still demonstrated the surprising durability of the world’s largest economy.
Consumer spending, which accounts for approximately 70% of the total economy, was a key driver of this growth. Americans continued to spend freely on a wide range of goods and services, ranging from clothing, furniture, recreational vehicles, and other goods to services like hotels and restaurant meals. Their spending expanded at a 2.8% annual rate.
Moreover, the GDP report showed a further easing of inflationary measures. Consumer prices rose at a 1.7% annual rate, down from 2.6% in the third quarter. Core inflation, which excludes volatile food and energy prices, came in at a 2% annual rate. These numbers could reassure policymakers at the Federal Reserve, who have signaled their intention to cut the benchmark interest rate three times in 2024 to combat inflation. Some economists even speculate that rate cuts may begin as early as May.
The recent data paints an optimistic picture of the US economy and instills confidence in a potential soft landing scenario, in which borrowing rates would cool growth and hiring without triggering a recession. The economy has repeatedly defied predictions of a downturn in the face of the Fed’s rate hikes. Last year, the economy expanded at a rate of 2.5% compared to 1.9% in 2022.
President Joe Biden seized the opportunity to highlight the strength of the GDP report while discussing his economic stewardship during a visit to Wisconsin.
The experts from the time I got elected were insisting that a recession was just around the corner,” he said, Well, you know, we’ve got really strong growth.
However, concerns remain about the potential impact of higher rates on borrowing and spending. Citi’s global chief economist, Nathan Sheets, believes that while economic growth can remain solid even as inflation cools, there may be some slowing down this year.
Beth Ann Bovino, chief economist at U.S. Bank, also expects the economy to experience a degree of slowdown due to weakened borrowing and spending. She emphasized that people are likely to feel squeezed by this situation.
Despite an overall positive outlook, the nation’s voters face a pivotal question: the sharp drop in inflation or the fact that most prices remain significantly higher than three years ago. This dilemma may influence the upcoming presidential election.
The Federal Reserve began raising its benchmark rate in 2022 to combat rising inflation, reaching a rate of approximately 5.4%, the highest since 2001, before ending its hikes in July last year. The subsequent period witnessed a slowdown in year-over-year inflation, from 9.1% in June 2022 to 3.4%.
The US job market has remained relatively healthy, with employers adding an average of 225,000 jobs per month in the past year. Unemployment has also remained below 4% for 23 consecutive months.
Notably, the economy’s resilience can be attributed, in part, to consumers who emerged from the pandemic in good financial shape. Government stimulus checks and preparations made by many households have enabled them to continue spending despite rising prices and high interest rates.
While some economists predict a potential weakening of the economy in the coming months as pandemic savings are depleted and borrowing rates curtail spending, the recent report of increased consumer spending in December signals a positive end to the holiday shopping season.
In conclusion, the US economy’s surprising growth of 3.3% in the last quarter indicates continued resilience despite high interest rates and frustrations over price levels. Consumer spending played a key role, while inflation eased. Policymakers at the Federal Reserve may find the numbers reassuring, while concerns persist about potential slowdowns in borrowing and spending. As the election nears, voters face the decision of weighing the drop in inflation versus higher prices compared to three years ago.
Source: WSVN 7News | Miami News, Weather, Sports | Fort Lauderdale
