The U.S. economy grew at a 3.3% pace in the fourth quarter, much better than expected


 In the last quarter of 2023, the U.S. economy displayed a slower but continued growth, marking a year where unemployment remained low, inflation cooled down, and the anticipated recession did not materialize. The Commerce Department reported that the gross domestic product, adjusted for inflation, expanded at a 3.3 percent annual rate in the fourth quarter. This growth was notably lower than the 4.9 percent rate recorded in the previous quarter, yet it underscored the resilience of the recovery from the pandemic's economic disruptions. It's important to note that this latest reading is provisional and might undergo revisions in the future. Initially, forecasters had anticipated that the Federal Reserve's aggressive interest rate hikes would lead to an economic downturn. However, the opposite occurred, and the growth actually accelerated. Looking at the entire year, from the end of 2022 to the end of 2023, the GDP grew by 3.1 percent, which is an improvement from the less than 1 percent growth the preceding year and faster than any of the five years before the pandemic. An alternative measure, based on the average output over the year, indicated an annual growth of 2.5 percent in 2023.  

 The economic outlook for the year indicates continued, albeit slower, growth in the first quarter of 2024, with minimal signs of an imminent recession. Job layoffs remain infrequent, and employment is stable. Additionally, the cooling inflation has led to an increase in wages surpassing the pace of price hikes. Consumer sentiment is also displaying signs of improvement after several years of stagnation. Some economists, like Brian Rose from UBS, have expressed optimism about the current economic conditions, highlighting the unexpected combination of robust growth, low unemployment, and declining inflation, which defied initial expectations.

Despite these positive indicators, risks persist. Consumers are increasingly relying on credit cards and "buy now, pay later" loans for spending, which could become unsustainable if the job market weakens. Moreover, the substantial interest rates are impacting the broader economy, while international events, such as the conflict in the Middle East and economic challenges in China, could have repercussions domestically. Notwithstanding these threats, investors seem undeterred, as evidenced by the record-high stock market, and businesses are also exhibiting increased confidence by boosting their investments after preparing for a potential downturn last year.

Economists are questioning their forecasts for the 2023 recovery, with some attributing the unexpected strength to the unprecedented impact of the pandemic on economic dynamics. The Federal Reserve's previous challenges in managing inflation without causing unemployment have been reshaped by the unique circumstances of the pandemic, contributing to a quicker alleviation of inflation as pandemic disruptions eased. Michael Gapen from Bank of America noted that historical reliance and models might have resulted in a miscalculation in predicting the economic trajectory.  

The U.S. trade deficit in goods narrowed by 1% to $88.5 billion in December, according to the Commerce Department’s advanced estimate released Thursday.

This was in line with forecasts of economists polled by Econoday.

Initial jobless claims rose 25,000 to 214,000 in the week ended Jan. 20, the Labor Department said Thursday. This is the highest level in a month.

Economists polled by The Wall Street Journal had estimated new claims would rise to 200,000.

Last week claims fell a revised 14,0000 to 189,000. That compared with the initial estimate of a drop of 16,000 to 187,000.

Orders for durable goods were flat in December, the Commerce Department said Thursday.

Economists had forecast a 1.5% rise in orders for durable goods — products made to last at least three years.

Core capital goods orders, which exclude volatile sectors like transportation and defense, rose 0.3% last month after a 1% rise in November.

The figure omits defense and transportation and is a proxy for broader business investment.

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