Real GDP expanded by 3.3% quarter-over-quarter (q/q, annualized) in the fourth quarter of 2023 – well ahead of the consensus forecast calling for a more modest gain of 2%. For the year, real GDP grew by an impressive 2.5%.
Consumer spending remained hot, rising 2.8% – a very modest deceleration from the 3.1% gain recorded in the third quarter. Gains were spread across both goods (+3.8%) and services (+2.4%).
Non-residential business investment rose 1.9%, with structures (+3.2%), equipment (+1.0%) and intellectual property products (+2.1%) all chipping in with modest gains. Residential investment also ticked higher by just over a percentage point.
Government spending increased 3.3%, as outlays rose at both the federal (+2.5%) and state & local (+3.7%) level.
After an outsized contribution in Q3, inventory investment slowed but still added a tenth of a percentage point to Q4 GDP.
Net exports also chipped in 0.4 percentage points to headline growth, as a healthy gain in exports (+6.3%) was eclipsed by a smaller gain in imports (+1.9%).
Key Implications
Wow! Economic growth ends 2023 with a bang, smashing expectations and stringing together two of the strongest back-to-back quarters in two-years. The details of the report were very supportive of the ongoing resilience, with domestic demand accounting for most of last quarter’s gain.
With the economy holding up remarkably well and the labor market still tight by historical standards, policymakers can afford to proceed carefully over the coming months. Economic growth is still running well above its long-run potential, implying the near-term risks to the inflation outlook are skewed to the upside. From the Fed’s standpoint, this means any imminent rate cuts are off the table, and policymakers are likely to remain on hold until at least this summer.
