The U.S. economy grew faster than previously expected in the fourth quarter, boosted by strong consumer spending and business investment in non-residential buildings such as factories and medical facilities.
A report released by the Commerce Department on Thursday also showed a solid increase in profits last quarter by non-financial companies. Increased profits and increased employee productivity may encourage companies to retain employees.
Despite dire predictions of a recession due to the Federal Reserve’s first rate hike of 525 basis points since March 2022, aimed at curbing inflation, labor market resilience supported consumer spending. It keeps the economy afloat.
“Consumers will be central to gauging the strength left in this recovery,” said Christopher Rapke, chief economist at FWDBONDS in New York. “Consumer spending, which has shifted towards services, will be critical this year. ” he said.
The Bureau of Economic Analysis of the Department of Commerce has released its third estimate of gross domestic product (GDP) for the fourth quarter, showing that gross domestic product (GDP) increased at an annual rate of 3.4% in the previous quarter, compared to the previously announced 3.2%. It was announced that the pace had been revised upward.
The revisions reflected increases in consumer spending, business investment, and state and local government spending, offsetting declines in inventory accumulation and exports. Economists polled by Reuters expected the GDP growth rate to remain unchanged.
The economy continues to outpace its peers around the world, growing at a rate of 1.8% that central bankers consider non-inflationary. The economic growth rate for the July-September period was 4.9%. In 2023, the growth was 2.5%, and in 2022 he accelerated from 1.9%. Growth estimates for the first quarter are converging around a 2.0% pace.
Consumer spending improves
Personal consumption, which accounts for more than two-thirds of economic activity in the United States, increased by 3.3%, pushing up GDP growth by 2.20 percentage points. Previously, it was expected to grow at a pace of 3.0%. The upward revision was for the service industry.
The increase in business spending reflects higher-than-previously expected spending on manufacturing, commercial and medical facilities. Spending on intellectual property products was also revised upward, although the decline in spending on equipment was not as steep as previously expected.
Corporate profits, which include inventory valuations and capital consumption adjustments, rose $133.5 billion in the fourth quarter, following a $108.7 billion increase in the July-September period.
Profits of domestic non-financial corporations increased by $136.5 billion, and profits of financial corporations increased by $5.9 billion. This more than offset an $8.9 billion decline in profits from other countries.
In terms of income, the economy grew at a solid 4.8%. Gross domestic income (GDI) grew at a pace of 1.9% in the July-September period. In principle, GDP and GDI should be equal, but in practice they are different because they are estimated using largely independent source data.
The gap between GDI and GDP has widened in previous quarters, raising concerns among some economists that the economy may not be as strong as GDP statistics suggest. The surge in GDI reflected increases in wages and profits.
The average of GDP and GDI, also known as gross domestic product and considered a better indicator of economic activity, increased at a rate of 4.1% in the previous quarter after increasing at a pace of 3.4% in the third quarter. .
In a separate report released Thursday by the Labor Department, the number of first-time claims for state unemployment benefits fell by 2,000 for the week ending March 23, to a seasonally adjusted 210,000. Economists had expected 212,000 applications for the latest week.
Since February, the number of insurance claims has remained in the range of 200,000 to 213,000. Despite a wave of high-profile layoffs earlier in the year, most employers are keeping employees on board.
The number of people receiving benefits after the first week of aid, which is a proxy for employment, rose from 24,000 to 1.819 million in the week ending March 16, according to the claims report. increased. The so-called continuing claims covered the period when the government was surveying households on the unemployment rate for March.
Continuing claims remained largely unchanged between the February and March survey periods. The unemployment rate in February was 3.9%.
