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United States GDP Q4 2023

United States: GDP growth beats expectations in Q4

GDP growth slowed to 3.3% in seasonally adjusted annualized rate terms (SAAR) in the fourth quarter, from 4.9% in the third quarter. However, the figure was well above market expectations, and likely made the U.S. by far the best-performing economy in the G7 in the fourth quarter. On an annual basis, economic growth edged up to 3.1% in Q4, following the previous period’s 2.9% expansion. Q4’s reading marked the fastest growth since Q1 2022.

Household spending growth slowed to 2.8% SAAR in Q4 from a 3.1% expansion in Q3. That said, the outturn was still strong, with consumption buoyed by ongoing healthy employment growth and ebbing price pressures. Public spending growth was the slowest since Q4 2022, expanding 3.3% (Q3: +5.8% SAAR). Meanwhile, fixed investment growth fell to 1.7% in Q4, marking the worst result since Q4 2022 (Q3: +2.6% SAAR).

On the external front, exports of goods and services growth accelerated to 6.3% in seasonally adjusted annualized terms in the fourth quarter, which marked the best reading since Q1 (Q3: +5.4% SAAR). Conversely, imports of goods and services growth waned to 1.9% in Q4 (Q3: +4.2% SAAR).

Our Consensus is for economic growth to ebb this year, but the economy now seems very unlikely to contract, given sustained disinflation in recent months and still-robust economic activity.

On current economic conditions, TD Economics’ Thomas Feltmate said:

“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.”

On the outlook, Nomura analysts said:

“Faster disinflation and the Fed’s dovish pivot have led to easing financial conditions and robust risk sentiment. This reduces the risk of a sharp credit contraction in the business sector and may unleash pent-up demand in housing and consumer spending when the Fed delivers its widely expected rate cuts. Although recession risks will linger […] a contraction is no longer our base case.”

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