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Recession? What recession? The economy is still humming along, according to the latest GDP report from the Bureau of Economic Analysis (BEA). The US’s real GDP grew at an annual rate of 3.2% in Q4 2023, the sixth straight quarter it’s risen more than 2%. For the full year, real GDP was up 2.5%, better than 2022’s 1.9% increase.
Consumer spending, which rose 3% in Q4, was one of the main drivers of GDP growth, as was state and local government spending, which was up 5.4%.
That said, though last quarter’s GDP growth was strong, it wasn’t quite as vigorous as in Q3, when it rose 4.9%.
Inflation moderating: But the figure the Fed will have eyes on is the core personal consumption expenditures (PCE) price index, a key inflation indicator it looks at when determining whether to change interest rates. The index, which measures changes in the prices of consumer goods minus food and energy prices, which tend to be volatile and thus less reliable, rose 2.1% in Q4, up 0.1% from Q3. The GDP data released this week is the last the Fed will see before its next meeting on March 19–20.
According to the BEA data, inflation still has a way to go before it reaches the Fed’s goal of 2%. But it’s getting there. For full-year 2023, the core PCE price index was up 4.1%, versus 5.2% in full-year 2022.
That’s a worrisome sign if you were hoping that rate cuts were around the corner, especially in light of recent remarks by New York Federal Reserve President John Williams: “While the economy has come a long way toward achieving better balance and reaching our 2% inflation goal, we are not there yet,” he said.