The U.S. economy experienced an unexpected annual growth rate of 3.3 percent between October and December. This growth was primarily driven by robust consumer spending, despite the challenges posed by rising interest rates and frustrating price levels for many households.
According to a report by the U.S. Department of Commerce, the gross domestic product (GDP), which represents the total production of goods and services in the economy, slowed down from a significant growth rate of 4.9 percent in the previous quarter.
Read more: U.S. inflation surges ahead of Federal Reserve’s rate decision
Nevertheless, these latest figures underscore the remarkable resilience of the world’s largest economy. It marks the sixth consecutive quarter in which the GDP has grown at an annual rate of 2 percent or higher, as reported by the Associated Press.
Consumer spending, which accounts for approximately 70 percent of the economy, played a leading role in the growth observed in the fourth quarter. Consumers increased their spending on various goods, including clothing, furniture, leisure vehicles, and services such as hotel stays and restaurant meals. The annual growth rate of consumer spending reached 2.8 percent.
Inflationary pressures continued to decline
The GDP report also revealed that despite the strong growth during the October-December period, inflationary pressures continued to decline. Consumer prices rose at an annual rate of 1.7 percent, down from 2.6 percent in the third quarter. Excluding the volatile food and energy prices, the underlying inflation rate stood at 2 percent annually.
The state of the economy is expected to influence citizens’ perspectives leading up to the November elections. Following a prolonged period of pessimism, Americans have started to feel somewhat more optimistic about inflation and the overall state of the economy. This trend could support consumer spending, fuel economic growth, and potentially impact voters’ decisions.
Growing optimism
There is a growing sense of optimism that the Federal Reserve (Fed) is successfully steering the economy toward a rare “soft landing.” The central bank has been gradually increasing borrowing rates to achieve a balance between controlling growth, employment, and inflation without destabilizing the economy.
The economy’s performance has defied expectations that the Fed‘s interest rate hikes would trigger a recession. After experiencing a contraction last year, the economy rebounded and achieved a growth rate of 2.5 percent, up from 1.9 percent in 2022.
Support of government stimulus checks
One key reason for the economy’s durability is the financial strength of consumers, who have emerged from the pandemic with the support of government stimulus checks. These checks have bolstered the financial position of millions of households, enabling them to sustain their spending habits despite higher prices and interest rates.
However, some economists predict that the economy may weaken in the coming months. As pandemic-related savings dwindle and credit card balances approach their limits, higher interest rates are likely to dampen consumer spending. However, the government recently provided positive news by reporting an increase in consumer spending at retailers in December, signaling an optimistic end to the holiday shopping season.
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