By Jeffry Bartash
The US economy continues to grow at a strong pace
The numbers: The final reading of U.S. growth in the fourth quarter of 2023 rose a few notches to a 3.4% annual pace, reflecting strong consumer spending and a surprisingly resilient economy.
The government previously said gross domestic product had expanded at a rate of 3.2% in the final three months of last year. The figure is adjusted for inflation.
The economy's growth rate is forecast to slow to a still healthy 2% in the soon-to-end first quarter.
GDP is the official scorecard of the economy. The maximum sustainable speed of the economy in the long term is generally considered to be around 1.8%.
Key details: Consumer spending, the main driver of the economy, was revised up to show an increase of 3.3% in the fourth quarter instead of 3%.
Consumer spending accounts for about 70% of the US economy.
Government spending was slightly higher than previously reported.
Overall business investment, the economy's second-largest parity, was also somewhat stronger.
Adjusted corporate earnings before taxes rose in the fourth quarter at an annual rate of 4.1%, indicating that companies are in good shape.
Inflation using personal consumption expenditure - or PCE - rose at a mild annual rate of 1.8% in the fourth quarter. The price index remained unchanged from the previous estimate.
The most closely watched core rate eased slightly to an annual rate of 2.0%, matching the Federal Reserve's 2% inflation target.
The central bank aims to reduce the inflation rate to 2% throughout the year, but it has increased in the first months of 2024.
One measure that economists follow closely is the average growth rate of the U.S. economy by combining the spending side of the ledger (GDP) and the income side (gross domestic income).
That measure shows that the economy expanded at an even stronger pace of 4.1% in the fourth quarter, up from 3.4% in the third quarter of 2023.
The GDP is updated twice after its initial release.
Big picture: The economy grew at a surprisingly fast pace in the second half of 2023 despite the highest interest rates in some decades. Now growth is slowing somewhat as higher rates begin to kick in and households reduce their savings.
However, the economy could get a big boost if the Federal Reserve cuts interest rates later this year, as is widely expected. The timing and magnitude of the rate cuts will depend on how quickly inflation continues to slow toward the Federal Reserve's 2% target.
Looking ahead: "This morning's strong GDP number (3.4% vs. 3.2% expected) is another reminder of how resilient this economy remains," said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance. .
"With a resilient economy fueled by a resilient consumer, this sets the stage for another strong earnings season, beginning next month."
Market Reaction: The Dow Jones Industrial Average DJIA and S&P 500 SPX are expected to open higher in trading on Thursday.
-Jeffry Bartash
This content was created by MarketWatch, operated by Dow Jones & Co. MarketWatch is published independently of Dow Jones Newswires and The Wall Street Journal.
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03-28-24 0921ET
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