The U.S. economy grew by a surprising 3.3% in the fourth quarter

[New Sancai Compilation First Edition] Although high interest rates and high price levels have frustrated many families, Americans still show their willingness to spend freely. Therefore, from October to December 2023, the U.S. economy unexpectedly grew at an annual rate of 3.3%. Strong growth.

The U.S. Department of Commerce reported on January 25, 2024 that U.S. gross domestic product (that is, the total output of goods and services in the economy) has slowed down from the astonishing growth rate of 4.9% in the previous quarter. But the latest data still reflects the surprising durability of the world's largest economy, marking the sixth consecutive quarter in which GDP has grown at an annual rate of 2% or more. Consumers largely drove last quarter's expansion.

The full-year economic growth in 2023 is 2.5%, higher than the 1.9% in 2022.

Economic conditions will certainly put pressure on people ahead of the November 2024 elections. After a prolonged downturn, Americans are starting to feel better about inflation and the economy — a trend that could sustain consumer spending, boost economic growth and potentially influence voters' decisions. For example, a University of Michigan consumer confidence index has seen its largest increase since 1991 in the past two months.

There is growing optimism that the Fed is expected to achieve a rare "soft landing" - raising borrowing rates enough to cool growth, employment and inflation without sending the economy into chaos. Inflation hit a four-year high in 2022 but has been steadily lower since then, and most economists believe painful job cuts are necessary to slow the pace of price increases.

A year ago, the economic outlook looked much bleaker. As recently as April 2023, an economic model released by the Conference Board, a business group, predicted that the probability of the United States entering a recession in the next 12 months was close to 99%.

Although inflation in the United States has slowed significantly, overall prices are still nearly 17% higher than before the outbreak three years ago, angering many Americans. That fact could raise a key question for American voters, many of whom are still feeling the lingering financial and psychological effects of the worst bout of inflation in four decades. Which matters more in the presidential election: a sharp decline in inflation, or that most prices are well above where they were three years ago?

The Federal Reserve will begin raising benchmark interest rates in March 2022 in response to a pickup in inflation as the economy recovers from the epidemic recession. By the end of the hike in July 2023, the central bank has raised its influential interest rate from near zero to about 5.4%, the highest level since 2001.

Year-on-year inflation slowed from 9.1% in June 2022, the fastest rate in four decades, to 3.4% last month as the Federal Reserve's rate hikes take their toll on the economy. That marks a significant improvement, but inflation remains above the Fed's 2% target.

The economic cost of the progress achieved so far has been surprisingly small. Over the past year, employers have added 225,000 jobs each month. The unemployment rate has remained below 4% for 23 consecutive months, the longest such streak since the 1960s.

The once-hot job market has cooled, easing the pressure on companies to raise wages to retain or attract employees, and then pass on higher labor costs to customers through price increases.

This happens in perhaps the least painful way: Employers typically reduce vacancies rather than lay off workers. This is partly because many companies were caught off guard when the economy rebounded strongly from the short but brutal pandemic recession of 2020, unwilling to risk losing employees.

Another reason for the strong economy is that consumers are in surprisingly good financial shape after the pandemic, in part because tens of millions of households received government stimulus checks. As a result, many consumers have managed to keep spending even in the face of rising prices and high interest rates.

Some economists say the economy will weaken in the coming months as savings are depleted during the pandemic, credit card use reaches its limits and rising borrowing rates limit spending. However, the government reported last week that consumers spent more at retailers in December, providing an upbeat ending to the holiday shopping season.

Joe Brusuelas, chief economist at tax and consulting firm RSM, said he believes consumer spending is even stronger than the retail sales report suggests. Brussulas said government data "does not fully reflect" increased spending on travel and other services during the holidays.

(Compiled by: Wang Jimin)

(Editor: Jiang Qiming)

(Source of the article: First published by Xinsancai)