Recession Scuttled by Strong Consumer Spending
New York, NY, January 26, 2024-"The recession never showed up in 2023. Consumers made sure of it,” reports the Wall Street Journal.
“The U.S. economy grew 3.1% over the past year, the Commerce Department said Thursday. A resilient labor market supported strong consumer spending and brushed aside a feared downturn. A year ago economists saw a recession as very likely and projected anemic 0.2% growth for the year. Instead, last year’s gain was a sharp pickup from a comparable 0.7% advance in 2022.
“The year was capped by a fourth quarter in which the economy grew at a 3.3% seasonally and inflation-adjusted annualized pace, fueled by household and government spending. The quarterly reading was a slowdown from the summer’s 4.9% pace but still a healthy rate.
“‘It’s been a really strong year for economic growth,’ said James Knightley, chief international economist at ING. ‘The consumer was meant to roll over-and they didn’t.’
“The expansion is expected to continue in 2024, albeit at a significantly slower pace. With inflation moderating, the Federal Reserve is likely to shift toward interest-rate cuts which would support the economy this year, economists say. But that buoyancy could be challenged by slower hiring and increased strain on Americans who have spent down pandemic-era savings.
“The 3.1% annual GDP growth shows the seasonally adjusted fourth-quarter change from a year earlier. Economists surveyed by The Wall Street Journal and the Fed use that metric for forecasts.
“The final three months of the year looked a lot like the soft landing Fed officials are seeking to achieve. Growth was strong, employers added nearly a half-million jobs and inflation cooled to an annualized 1.7% rate, below the Fed’s 2% target.
“Fed officials are on track to hold rates steady at a 23-year high at a meeting next week and have penciled in three rate cuts for 2024.
“Much of the credit for better-than-expected growth goes to free-spending consumers who have not turned off the tap. They spent more on healthcare, dining out and cars in 2023. Holiday sales beat expectations. Spending on housing was flat on an inflation-adjusted basis over the prior year, reflecting a tough environment for home sales-but also stabilization. Private residential investment dropped 17% in 2022.”