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This consumer alert focuses on three letters you might not have thought of from your high school economics class, GDP or Gross Domestic Product. The numbers are out for 2023 and I've been reading analysis from my favorite economists. Yes, I have some favorite economists. I fully accept my stupidity. And economists are dissecting the GDP numbers.
Gross domestic product includes all goods and services produced in the United States. For the full year, our GDP grew by 3.1 percent — and 3.3 percent in the last quarter. This indicates strong economic growth.
The first analysis I wanted to read was a study by Mark Sandy, Chief Economist at Moody's Analytics. I like the guy because he's wicked smart, but seemingly approachable. But don't be fooled. The 65-year-old is very serious, certainly not prone to bursts of uncontrollable joy.
But gleeful is the perfect adjective to describe his analysis of the GDP report.
„It's a perfect statement: strong growth and low inflation,” Jandy told the Washington Post. „Everything contributed to growth: consumers, businesses, government, households, trade, goods. All economic wheels moved in the same direction.
But other economists are skeptical.
„My view is that this combination of data is highly unusual and unlikely to last,” Tom Simons, money market economist at Jefferies in New York, told USA Today. „Either inflation is going to go back up, or growth is going to slow. I don't understand how the economy can continue with this perfect, perfect, immaculate inflation story.
Consumer spending accounts for two-thirds of GDP. And we spent the rest of the year. At the same time, inflation is falling. A key inflation gauge, PCE, was released on Friday and showed a year-over-year inflation rate of 2.9 percent, down from 3 percent since March 2021.
But if you look at the fourth quarter of 2023, inflation has come down to 1.7 percent. That is very good.
The central bank considers 2 percent inflation as a sign of a healthy economy.
But some economists fear that we will end up paying all of those costs in the end. I also read Beth Ann Bovino's analysis. He is the chief economist at Bank of America. He said, „I suspect that when people open up those credit card bills this year, they're going to start rethinking things,” Bovino said. „They'll want to spend less and trade up.”
And that leads to a sluggish economy.
So, what does all this mean for us as consumers? All the analysts I read agree that the economy appears to be strong, but they disagree on how strong it is and how long it will stay that way. But we know this because inflation is slowing and the Fed will start cutting interest rates this year. So, if you've been waiting to buy a home or a car, later this year might be the time to jump in.