The U.S. economy expanded by a solid 3.2% in the fourth quarter of last year, according to the Commerce Department, a slight adjustment from its earlier estimate. This growth was largely driven by strong consumer spending.
Although slightly lower than the initial 3.3% estimate, the fourth-quarter growth followed a red-hot 4.9% expansion in the previous quarter. The U.S. economy has now maintained growth above 2% for six consecutive quarters, defying concerns that high interest rates could push it into a recession.
For the entire year 2023, the U.S. economy grew by 2.5%, outpacing the 1.9% growth seen in 2022. Consumer spending, which makes up around 70% of economic activity, grew by 3% in the final quarter of the year. Additionally, exports and spending by state and local governments contributed to the overall growth.
Looking ahead to 2024, the International Monetary Fund expects the U.S. economy to grow by 2.1%, which is significantly higher than its forecasts for other major advanced economies. Despite concerns about high prices, inflation has eased slightly, with consumer prices up by just 3.1% from January 2023.
The Federal Reserve responded to rising inflation by raising its benchmark interest rate 11 times between March 2022 and July 2023, which helped to rein in inflationary pressures. The unemployment rate has remained below 4% for 24 consecutive months, and employers have been adding an average of 244,000 jobs per month over the past year.
Overall, the combination of easing inflation, strong hiring, and steady GDP growth has raised hopes for a “soft landing,” where inflation is brought under control without causing a recession. The final revision of the fourth-quarter GDP growth will be released on March 28th.
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