On Thursday, the US Department of Commerce reported substantial growth in the US economy for Q4 of 2023, surpassing initial expectations. The gross domestic product (GDP) surged by 3.3% in Q4, following an impressive 4.9% rise in Q3. Quite unexpectedly, economists had anticipated a 2% hike in GDP.
A continued increase in consumer spending significantly contributed to the GDP growth, with a marked 2.8% rise in Q4, following a 3.1% surge in Q3. The Department of Commerce attributes this consistent growth in consumer spending to an increase in expenditure on services and goods.
Within the service sector, substantial contributors were health care, accommodation, and food services. At the same time, increased spending on goods was driven predominantly by computer software and pharmaceutical products. The GDP growth was further backed by an increase in non-residential fixed investment, government spending, exports, private inventory investment, and residential fixed investment.
James Knightley, the ING Chief International Economist, attributed the remarkable GDP growth rate in Q4 2023, surpassing all forecasts, to robust consumer and government spending coupled with a positive net trade contribution.
In contrast, however, the report indicated a slowdown in GDP growth pace compared to the previous quarter, due to a decrease in federal government spending, consumer spending, residential fixed investment, and private inventory investment.
The Commerce Department also revealed that the personal consumption expenditures (PCE) price index rose by 1.7% in Q4, compared to a 2.6% increase in Q3. After excluding food and energy prices, the PCE price index recorded a 2.0% increase for the second consecutive time in Q4.
Anticipating weaker GDP growth for Q1 based on business surveys, Knightly mentioned that the Fed is close to claiming victory over inflation with a second consecutive quarterly core inflation reading of 2%.
