- The US economy grew at a 3.3% annualized rate in the fourth quarter of 2023, surpassing most forecasts and outperforming other advanced economies.
- Consumer spending was the main engine of growth, fueled by the massive Covid stimulus packages that boosted household incomes and savings.
- The US also achieved its inflation target of 2%, indicating that the economy is recovering from the pandemic-induced slump and is ready for higher interest rates.
Why it matters:
The US economy demonstrated its resilience and dynamism in the face of unprecedented challenges and uncertainties, while other major economies such as the eurozone, the UK and Japan struggled with low growth and deflationary pressures, reflecting their weaker fiscal and monetary responses to the crisis.
The big picture:
The US economy was hit hard by the Covid-19 pandemic, which caused a historic contraction of 31.4% in the second quarter of 2020. However, the US government and the Federal Reserve acted swiftly and aggressively to support the economy, unleashing trillions of dollars in stimulus spending and monetary easing. These measures helped cushion the impact of the pandemic and stimulate a strong rebound in the second half of 2020 and throughout 2021 and 2022.
By the numbers:
- The US economy grew by 6.4% in 2020, 5.8% in 2021 and 4.2% in 2022, according to the Bureau of Economic Analysis.
- Consumer spending, which accounts for about 70% of the US economy, rose by 5.8% in the fourth quarter of 2023, the highest rate since the third quarter of 2020.
- The Personal Consumption Expenditures price index, the Fed’s preferred measure of inflation, increased by 2.6% annually in December 2023, the highest rate since November 2018.
- The unemployment rate fell to 3.9% in December 2023, the lowest level since February 2020, before the pandemic hit.
What they’re saying:
- “The US economy ended 2023 on a high note, defying expectations of a slowdown and showing its ability to adapt and innovate in the face of a global crisis,” said Mark Zandi, chief economist at Moody’s Analytics.
- “The US economy is in a sweet spot, with strong growth, low unemployment and moderate inflation. The Fed has done a remarkable job of balancing its dual mandate of maximum employment and price stability,” said Diane Swonk, chief economist at Grant Thornton.
- “The US economy is a shining example of how to deal with a pandemic, while other economies are lagging behind and suffering from the consequences of their inadequate policies,” said Nouriel Roubini, professor of economics at New York University.
What’s next: The US economy is expected to maintain its momentum in 2024, as the Covid-19 situation improves and the Biden administration pursues its ambitious agenda of infrastructure spending, social welfare programs and climate action. However, the economy also faces some headwinds, such as rising interest rates, supply chain disruptions, labor shortages and geopolitical tensions
