The US economy experienced solid annual growth of 3.4% from October to December, the government announced Thursday, raising its previous estimates. The government previously estimated that the economy grew by 3.2% last quarter.
The Commerce Department’s revised measure of the nation’s gross domestic product — total output of goods and services — confirmed that the economy decelerated from its blistering 4.9% expansion rate in the quarter from July to September.
But last quarter’s GDP growth remains a solid performance, despite rising interest rates. It was fueled by increased consumer spending, exports and business investment in buildings and software. This is the sixth consecutive quarter in which the U.S. economy has grown at an annual rate of more than 2%.
For the full year 2023, the U.S. economy grew 2.5%, compared to 1.9% in 2022. In the current January-March quarter, the economy is expected to have grown slower, but still decent, annual growth of 2.1%, according to a forecast model released by the Federal Reserve Bank of Atlanta.
Thursday’s GDP report also suggests that inflationary pressures continue to ease. The Federal Reserve’s preferred price measure — called the Personal Consumption Expenditures Price Index — rose at an annual rate of 1.8% in the fourth quarter. That’s a slowdown from the 2.6% pace in the third quarter, and it’s the smallest increase since 2020, when COVID-19 triggered a recession and sent prices tumbling.
Excluding volatility in food and energy prices, core inflation stood at 2% from October to December, unchanged from the third quarter.
The resilience of the U.S. economy over the past two years has repeatedly defied predictions that ever-higher borrowing rates put in place by the Fed to combat inflation would lead to waves of layoffs and likely to a recession. Starting in March 2022, the Fed raised its benchmark rate 11 times, to its highest level in 23 years, making borrowing much more expensive for businesses and households.
Still, the economy continued to grow and employers continued to hire — averaging a robust 251,000 new jobs per month last year and 265,000 per month from December to February.
At the same time, inflation gradually slowed: after peaking at 9.1% in June 2022, it fell to 3.2%, while remaining above the Fed’s 2% target. The combination of robust growth and slowing inflation has raised hopes that the Fed will achieve a “soft landing” by fully controlling inflation without triggering a recession.
Thursday’s report is the Commerce Department’s third and final estimate of fourth-quarter GDP growth. It will release its first estimate of January-March growth on April 25.