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The U.S. economy is expected to have grown strongly in 2023, overcoming recession fears and providing an optimistic picture for consumers and businesses ahead of a crucial election year.
New government data this morning is expected to show the economy grew 2.7 percent last year, according to economists surveyed by Bloomberg News. That's a comparatively strong pace, in line with gross domestic product numbers achieved in most years before a presidential election year, going back four decades.
Although growth likely slowed in the final three months of the year – to about 2 percent, compared with the oppressive 4.9 percent in the previous quarter – the economy is back to stability after a period of dramatic pandemic-related swings that characterized 2020 Basis returned by early 2022.
“The gloom of last year has been swept aside,” said Philipp Carlsson-Szlezak, chief global economist at Boston Consulting Group. “The pessimism was pushed back quarter after quarter.”
The economy's resilience was driven by strong consumer spending. A strong labor market and rising wages have allowed many households to continue spending even during times of increased inflation – particularly on services such as entertainment, travel and dining out.
According to estimates by the Federal Reserve Bank of Atlanta, this spending by ordinary Americans may have accounted for 80 percent of economic growth in the fourth quarter. Increased government spending, particularly at the state and local levels, has also likely led to an increase in the most recent GDP figure, which summarizes the goods and services produced in the U.S. economy. Meanwhile, a decline in exports and declining private and housing investment are expected to weigh on the latest figures.
Government policies played an important role in supporting the economy last year. The Biden administration's efforts to finance new infrastructure and clean energy projects have created new jobs and spurred $640 billion in private investment across the country.
“This is what a healthy U.S. economy should look like in general: growth through consumer spending,” said Lauren Goodwin, economist and chief market strategist at New York Life Investments. “The consumer has been incredibly resilient and certainly stronger than we expected.”
Bookings at the Flowertown Bed and Breakfast in Summerville, SC are up across the board: more guests are staying and demand for weddings, baby showers and other events is at its highest in years.
“I was surprised at how stable things were,” said owner Carol Grant. “I'm in the supermarket every other day and the prices are just terrible, but people are still spending money. There was no slowdown whatsoever.”
Strong economic growth has distinguished the United States from its competitors. Europe and Britain are on the brink of recession and China – the world's second largest economy – is on shaky ground. Overall, economic growth in advanced economies is expected to slow to 1.4 percent this year, according to the International Monetary Fund.
Despite the economy's strong rebound from the pandemic-induced recession, Biden has struggled to convince voters that his policies will improve their lives. Higher prices, particularly for essential goods like food, housing and utilities, have clouded Americans' view of the economy, with inflation routinely topping voters' list of top concerns.
The economy is widely expected to slow further in 2024, after two years of vigorous expansion following the pandemic. (GDP grew 5.95 percent in 2021 and 2.06 percent in 2022.) Although some economists still expect a mild recession this year, many appear optimistic that the economy will recover without major job losses or can stabilize a longer downturn.
“We are reaching a more sustainable level, both in the economy and in the labor market,” said Satyam Panday, chief U.S. economist at S&P Global Ratings. “We expect a controlled, steady slowdown, not a recession.”
The Federal Reserve has been aggressively raising interest rates since last year to slow the economy enough to reduce inflation. Although his efforts are working – prices are up 3.4 percent year over year, compared to a peak of 9.1 percent in June 2022 – many Americans are still suffering from sticker shock at grocery stores and gasoline prices, where the cost remain high compared to the previous year. Pandemic level.
Still, there are signs that Americans are starting to get a better feel for the economy as inflation eases. Consumer confidence rose in November and December. But it is unclear whether this will result in any political points for the White House.
Anthony Reilly, a hair salon owner in Philadelphia, says business has gradually slowed in recent months as customers reconsider their spending. The usual holiday boom that begins just before Thanksgiving wasn't quite as dramatic this time. January is also likely to be slower than usual.
“It feels like things are a little bit in limbo, like everyone is starting to tighten their purse strings,” he said. “It’s not eerily dead anymore, but it’s not as hectic as it used to be either.”
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