The country's economy grew at an unexpectedly fast pace of 3.3% annually from October to December as Americans continued to show a willingness to spend freely despite high interest rates and price levels that are frustrating many households. I grew up in
Thursday's Report from the Department of Commerce Gross domestic product, the economy's total output of goods and services, slowed from the previous quarter's impressive 4.9% growth rate, he said.
But the latest figures still reflect the remarkable resilience of the world's largest economy, showing GDP growing at more than 2% annually for six consecutive quarters.
Consumers, who account for about 70% of the economy, drove growth in the fourth quarter.
Their spending grew at an annual rate of 2.8%, ranging from goods such as clothing, furniture and recreational vehicles to services such as meals at hotels and restaurants.
The GDP report also showed that anti-inflation measures continued to ease despite strong growth in the October-December period.
Consumer prices rose at an annual rate of 1.7%, down from 2.6% in the third quarter.
And, excluding volatile food and energy prices, so-called core inflation remained at an annual rate of 2%.
These inflation numbers could reassure Federal Reserve policymakers, who have already signaled that inflation is to be expected. The base interest rate was lowered three times. In 2024, the government will reverse its 2022-2023 policy of aggressively raising interest rates to combat inflation.
“While GDP growth in the fourth quarter was stronger than expected, underlying inflation continued to slow,” said Paul Ashworth, chief North American economist at Capital Economics. “The bottom line is that an early spring rate cut by the Fed remains the most likely outcome.”
The economic situation is sure to weigh heavily on people's minds ahead of the November election.rear long period of depressionAmericans are starting to feel somewhat better about inflation and the economy, and this trend is likely to continue. consumption expenditurecan promote economic growth and influence voters' decisions.
a Consumer sentiment scale For example, the University of Michigan's results have seen the biggest increase in the past two months since 1991.
There is growing optimism that the Fed is on track to meet its goals A rare “soft landing” — Keep borrowing rates high enough to keep growth, employment and inflation in check, but not so high that they stagnate the economy.
Inflation will reach its highest level in 40 years in 2022, but It has been steadily declining since then. There were no painful layoffs that most economists thought were necessary to slow the acceleration in prices.
The economy has repeatedly defied expectations that the Fed's aggressive interest rate hikes would cause a recession.
Rather than collapsing, the economy accelerated last year, expanding by 2.5% from 1.9% in 2022.
“Our expectation is a soft landing, and things appear to be moving in that direction,” said Beth Ann Bovino, chief economist at U.S. Bank. Still, Bovino expects the economy to slow slightly this year as higher interest rates weaken borrowing and spending.
“People will be squeezed,” she says.
A year ago, the economic outlook looked even bleaker.
As recently as April 2023, an economic model released by the Conference Board, an economic group, predicted a nearly 99% chance of the U.S. going into recession over the next 12 months.
Even though U.S. inflation has slowed significantly, overall prices are still nearly 17% higher than before the pandemic began three years ago, angering many Americans.
This fact probably raises serious questions for the nation's voters, many of whom still feel this way. Economic and psychological effects of worst inflation in 40 years linger.
Which one will carry it? Increased weight in the presidential election: Is it the sharp drop in inflation or the fact that most prices are well above their levels three years ago?
The Federal Reserve began raising its base interest rate in March 2022 in response to a resurgence in inflation as the economy recovers from the pandemic recession.
By the time the rate hikes ended in July last year, the central bank had raised the leverage rate from almost zero to about 5.4%, the highest level since 2001.
As the Fed's interest rate hikes have had an effect on the economy, year-over-year inflation has slowed from a 40-year high of 9.1% in June 2022 to 3.4% as of last month.
Although this marked a marked improvement, inflation remains above the Fed's 2% target.
The advances made so far have come at surprisingly little economic cost.
Employers added a healthy 225,000 jobs each month over the past year.
and the unemployment rate Remained below 4% for 23 consecutive monthsIt was the longest such streak since the 1960s.
The once-hot job market has cooled somewhat, easing pressure on companies to raise wages to retain or attract employees and pass those higher labor costs on to customers through higher prices.
It happened in probably the least painful way. Employers generally are reducing the number of job openings rather than laying off employees.
Part of the reason is that many companies don't want to risk losing employees when the economy quickly recovers from 2020's brief but brutal pandemic recession.
“Companies are hiring fewer people, but they're still retaining workers,” Bovino said.
Another reason the economy is strong is that consumers emerged from the pandemic in surprisingly good financial shape, in part because tens of millions of households received government stimulus checks.
As a result, many consumers managed to keep spending even in the face of rising prices and high interest rates.
Some economists have suggested the economy will weaken in coming months as pandemic savings are depleted, credit cards are maxed out and higher borrowing rates curb spending.
Still, the government reported last week: Consumers increased their spending at retail stores In December, the holiday shopping season ends on a bright note.
