US economy defies recession fears to reach solid 2023

WASHINGTON: US economic growth was stronger than expected in the final months of 2023, government data showed on Thursday (Jan 25), a boost for President Joe Biden as he heads up his re-election campaign.

The world's largest economy expanded at an annual rate of 3.3 percent in the fourth quarter, boosted by a resilient jobs market and consumer spending, the Commerce Department said.

Fourth-quarter growth was 3.1 percent, compared to the same period a year earlier.

Meanwhile, full-year growth is expected to accelerate from 1.9 percent to 2.5 percent in 2022.

Biden, who aims to convince voters that he has done a good job reining in spending while spurring investments to support the economy, welcomed the news.

„Wages, wealth and employment are higher now than they were before the pandemic,” he said in a statement.

„On my watch I've seen the economy grow from the middle to the bottom for three consecutive years,” he added, admitting that his job in lowering prices was not done.

The latest data reinforces the belief that the U.S. is reaching a „soft landing,” where inflation slows on the back of higher interest rates and doesn't trigger a damaging recession.

The Commerce Department said the fourth-quarter GDP jump reflected „increases in consumer spending, exports, state and local government spending” and other areas.

In early 2023, analysts expected consumer spending to lose steam as households reduced accumulated savings during the Covid-19 pandemic and higher borrowing costs.

Some warned the country could enter a recession, but growth has been supported by surprising labor market strength, with low unemployment even as hiring starts to cool.

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Slow growth

„Economic growth is more resilient than we expected through 2023,” Countrywide chief economist Kathy Postjanczyk told AFP.

„The biggest surprise was the continued strength in the labor market, which drove strong job and wage gains,” he added.

Increased per capita income helped support consumption.

But the economy is not out of the woods yet, with job growth weakening in some sectors and interest rates rising to a 22-year high.

„We still expect the economy to grow in 2024, but at a slower pace,” Bernard Yaros of Oxford Economics told AFP.

„As long as the labor market holds it together and unemployment gradually rises, consumers will continue to fuel this expansion,” he added.

„clears the way”

Yaros said residential investment will also be a big factor behind growth as the Federal Reserve cuts interest rates and homebuilders set to take advantage of low mortgage rates and a frozen housing market.

The outlook for first-quarter GDP is now „moderately sluggish” from the fourth quarter, Pantheon Macroeconomics chief economist Ian Shepherdson said in a note.

„But we're seeing some signs that the economy is getting rolling, and housing investment — the most interest rate-sensitive sector — is starting to recover,” he added.

Although the central bank's long-term GDP growth forecast is 1.8 percent, the latest data will not prevent policymakers from cutting rates in May or June.

„Inflation will be a key determinant of the timing and degree of Fed easing this year,” Postjanczyk said.

For now, the data points to „good growth with low inflation,” said Robert Frick, corporate economist at Navy Federal Credit Union.

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„This clears the way for the central bank to deliver three rate cuts this year,” he added.

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