US fourth quarter economic growth handily beats expectations

FILE PHOTO: A man carries his shopping bags during the holiday season in New York City, U.S., December 10, 2023. REUTERS/Eduardo Munoz/File Photo

By Lucia Mutikani

WASHINGTON (Reuters) – The U.S. economy grew faster than expected in the fourth quarter amid strong consumer spending, and defied dire predictions of a recession in 2023 after the Federal Reserve aggressively raised interest rates, with growth for the full year coming in at 2.5%.

Gross domestic product in the last quarter increased at a 3.3% annualized rate, the Commerce Department’s Bureau of Economic Analysis said on Thursday in its advance estimate of fourth-quarter GDP.

The economy grew at a 4.9% pace in the third quarter. Economists polled by Reuters had forecast GDP advancing at a 2.0% rate. Estimates ranged from a 0.8% rate to a 2.8% pace. The

economy is expanding at a pace above what Fed officials regard as the non-inflationary growth rate of around 1.8%.

Growth last year accelerated from 1.9% in 2022. The economy has stunned captains of industry and some economists who had called for a downturn since mid-2022. Part of the economy’s stamina reflects labor market resilience, marked by low layoffs and strong wage gains, which are underpinning consumer spending.

The labor Department in a separate report on Thursday said initial claims for state unemployment benefits increased 25,000 to a seasonally adjusted 214,000 for the week ended Jan. 20. Economists had forecast 200,000 claims in the latest week.

Increased government spending as well as near-zero interest rates during the COVID-19 pandemic, which allowed some corporations and households to lock in low rates, have also helped stave off a recession.

Economists had largely based their gloomy forecasts on the rapid pace at which the U.S. central bank was raising rates to dampen demand. Most have walked back their recession calls and now expect slow growth this year.

The Fed, at its meeting next week, is expected to keep its policy rate unchanged at the current 5.25%-5.50% range.

With the GDP report also showing inflation pressures subsiding last quarter, the central bank is widely anticipated to start cutting rates sometime in the first half of this year. Since March 2022, the Fed has raised its benchmark overnight rate by 525 basis points.

(Reporting by Lucia Mutikani; editing by Andrea Ricci and Chizu Nomiyama)