The release of the latest US GDP growth figures has revealed US real gross domestic product (GDP) increased at an annualised rate of 3.3% in the fourth quarter of 2023, according to the “advance” estimate released by the Bureau of Economic Analysis.
This was considerably higher than the consensus estimate among economists of 2.0% and but a slowdown compared to the third quarter, when real GDP increased by 4.9%.
Lindsay James, investment strategist at Quilter Investors, shares analysis and reminds us that the US picture remains very uncertain commenting:
“US growth may be slowing, but it remains anything but sluggish. Today’s fourth quarter growth number shows that the US economy is not grinding to a halt and any recessionary fears remain on hold for the foreseeable future. That would normally be considered very good news, but the market desires rate cuts and it wants them sooner rather than later. With such robust growth continuing to be a feature of the US economy, all eyes will turn to inflation data out later this week to see if last months’ disappointing CPI release was a blip. With today’s data showing growth in real disposable incomes of 2.5% in Q4, up from 0.3% in Q3, it’s clear that the Federal Reserve are under less pressure to be mindful of risk to growth and likely to be fully focussed on price stability, potentially delaying timing of the first cut further.”
“This puts it on a collision course for the US election. Jerome Powell (pictured) will be determined not to be seen to meddle in the outcome, however, with Donald Trump in pole position for the Republican nomination, and his expected campaign antics, it might not be long until Powell catches the ire of the former President once again.
“For now, however, the picture remains very uncertain as we hurtle towards the election. Forecasts by economists for US GDP growth in 2024 currently range from 0-3.1%, with the range of expectations for inflation only marginally narrower and wildly different to expectations in early 2023, showing how uncertain the outlook for 2024 remains.”
Nathaniel Casey, Investment Strategist at wealth manager Evelyn Partners, comments:
“The US economy continued to expand and beat expectations in the fourth quarter, albeit at a slower rate than in Q3, with real GDP growing at 3.3% on an annualised basis. This figure was both higher than the 2.0% expected by the consensus of economist’s forecasts and the latest estimate from the Atlanta Fed GDP nowcast which estimated GDP growth at 2.4%.
“The key driver of this came from personal consumption. Once again, the US consumer remained resilient over the quarter, regardless of the heightened interest rate environment. Despite weakening during October, retail sales rebounded during the holiday period with December’s print comfortably overshooting expectations, at a monthly growth rate of 0.6%. This translated to a 1.9 percentage point contribution to the real GDP figure for Q3.
“The robust labour market is a vital reason behind the resilient consumer and why US growth is holding up. Despite the rapid hiking of interest rates we’ve seen, the unemployment rate remains hovering around historic lows and initial jobless claims are also remaining subdued with a figure of 202k reported to close out 2023, far lower than the long-term average of 365k. While the labour market remains near full employment, households have the ability and willingness to spend, supporting the economy.
“Despite consumption remaining strong, inventory accumulation was subdued, adding less than 0.1 percentage points to the figure. However, if consumers keep spending and consumption remains strong, we expect this will increase heading into 2024 as businesses look to replenish stock.
“Looking further into the rest of the underlying data, a widening in net exports added 0.4 percentage points off the headline figure. Government expenditure added 0.6 percentage points.
“Core PCE, the Federal Reserve’s preferred measure of inflation, came in at 2.0%, in line with forecasts and the Fed’s target, indicating that the Fed is continuing to succeed in their fight against inflation, even as the US real economy defies expectations.
“Looking at what this means for growth and monetary policy over the coming quarters: during the most recent Federal Open Market Committee (FOMC) meeting policy setters amended their forward guidance, with three 25 basis point rate cuts now expected during 2024. This coupled with falling inflation has proved positive for fixed income markets with the US 10-year treasury bond falling by nearly 1% since it’s its peak of around 5% in October.
“With yields falling, financial conditions can ease, supporting the economy. Consumer sentiment has also been improving recently, returning in January to its highest levels since June 2021, and providing a further boost to consumption and reducing the likelihood of an economic hard landing.”
