Increased consumer spending boosted U.S. economic growth in the fourth quarter. (iStock)
Third and final estimate of real gross domestic product (GDP). 4th quarter of 2023 The Bureau of Economic Analysis (BEA) showed the U.S. economy grew at an annual rate of 3.4%, which was revised upward.
The figure was slightly higher than BEA’s second GDP forecast for the fourth quarter, which showed economic growth of 3.2%. This change mainly reflects upward revisions in personal consumption and non-residential fixed investment.
Real GDP grew at an annual rate of 3.4% from October to December, after increasing by 4.9% in the third quarter of 2023. Thursday’s final figure was slightly lower than BEA’s initial GDP estimate for the fourth quarter, which showed the economy grew. Growth was 3.3%, exceeding economic forecasts that had predicted a 2% growth slowdown from the previous month.
Economic growth is a key indicator the Federal Reserve monitors when considering when to start cutting interest rates. Fed officials expect at least three rate cuts this year, with the central bank saying rates are expected to fall to 4.6%. Latest economic forecasts In its Summary of Economic Projections (SEP) it said: Markets expect the first rate cut to occur in the summer, if not later this year.
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High interest rates put pressure on consumers’ wallets
Michele Ranelli, vice president of U.S. research and consulting at TransUnion, said the Fed’s decision to keep interest rates high for an extended period of time is putting a strain on consumers’ wallets and the amount they pay to borrow.
According to a recent TransUnion report, credit card balances soared past the $1 trillion mark for the first time in the fourth quarter of 2023. While Americans charged more on their cards, unsecured personal loan balances also rose in the fourth quarter. Retail origination balances exceeded $245 billion, up from $222 billion a year ago.
“Inflation continues to trend toward more normal levels, but today’s Fed decision will keep interest rates at current levels with any potential cuts occurring in the second half of 2024,” Ranelli said. Stated. “This means that U.S. consumers, who continue to face relatively high interest rates across a variety of credit products, will have to wait at least a little longer before interest rates ease. The impact is real and will continue to be felt.”It will likely be slow to take hold. ”
Ranelli said consumers can consider refinancing high-interest debt into lower-interest credit products to reduce their balances once interest rates drop.
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Consumer optimism improves
Despite economic challenges, consumer confidence hit a record high in March. The University of Michigan’s benchmark Consumer Confidence Index rose 3.3% in March to a final reading of 79.4, the highest since July 2021, the University of Michigan announced. report.
The figures reflect an improving outlook among consumers, with inflation continuing to ease and personal finances improving as the impact of rising prices and spending on living standards eases, the report said. .
Jim Baird, chief investment officer at Plante Moran Financial Advisors, said consumers may be feeling more optimistic, but the index remains at pre-pandemic highs, reflecting the long shadow of high inflation. It is said that it is far from that.
“Consumers are not exactly happy about the current state of the economy, their personal financial outlook, and the outlook for the economy,” Baird said. “The fact that consumer sentiment remains subdued despite a strong labor economy, strong wage growth, and above-trend economic growth is a direct reflection of the corrosive impact of the recent surge in inflation.
“Salaries may have increased significantly in recent years, but if that extra money quickly comes back to cover increased expenses for rent, food, gas, personal services, and many other expenses, , which is not surprising. Consumers are not that optimistic,” Baird continued.
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