The U.S. economy grew faster than expected in the fourth quarter amid strong consumer spending, and shrugged off dire predictions of a recession after the Federal Reserve aggressively raised interest rates, with growth for the full year coming in at 2.5%, Reuters reported.
The Commerce Department's advance fourth-quarter gross domestic product report on Thursday also showed inflation pressures subsiding further. The strong economic performance, which appears to have spilled over into the new year, suggested that March would be too soon for the U.S. central bank to start cutting interest rates. Rate cuts this year, however, remain in the cards as inflation cools.
"Whichever way you slice it, this report caps a year of stellar economic growth performance, particularly with the backdrop of the Fed's aggressive monetary policy tightening cycle," said Olu Sonola, head of U.S. regional economics at Fitch Ratings in New York. "The momentum of economic growth going into 2024 is looking very good."
Gross domestic product increased at a 3.3% annualized rate last quarter after advancing at a 4.9% pace in the third quarter, the Commerce Department's Bureau of Economic Analysis said. Growth was also supported by rising exports, government spending and business investment.
There was a small contribution from inventory investment. Though housing grew for a second straight quarter, it did not add to GDP growth. Economists polled by Reuters had forecast GDP rising at a 2.0% rate. Estimates ranged from a 0.8% rate to a 2.8% pace. The economy is expanding at a pace above what Fed officials regard as the non-inflationary growth rate of 1.8%.
Growth last year accelerated from 1.9% in 2022, and was the fastest in two years. From the fourth quarter of 2022 through the fourth quarter of 2023, the economy grew 3.1%, blowing away economists' estimates for a 0.1% contraction back in December 2022. Part of the economy's stamina reflects labor market resilience, marked by low layoffs and strong wage gains, which are underpinning consumer spending. The economy created 2.7 million jobs in 2023.
The Labor Department in a separate report on Thursday said initial claims for state unemployment benefits increased 25,000 to a seasonally adjusted 214,000 for the week ended Jan. 20, still very low by historical standards.
Increased government spending and near-zero interest rates during the COVID-19 pandemic, which allowed some corporations and households to lock in low borrowing rates, have also helped stave off a recession.