US economy surprises with faster-than-expected growth

The U.S. economy grew faster than expected in the final months of last year, driven by strong household and government spending.

The world’s largest economy expanded at an annual rate of 3.3% in the three months through December, according to the Commerce Department.

That was down from 4.9% in the previous quarter, but much faster than the 2% that many analysts had expected.

The annual economic growth rate in 2023 will be 2.5%, up from 1.9% in 2022.

The figure marks the high end of a year marked by unexpected economic resilience even as the U.S. central bank sharply raised borrowing costs and inflation cooled.

“No matter how you slice it, this report encapsulates an impressive year of economic growth,” said Ol Sonora, head of U.S. regional economics at Fitch Ratings. “Economic growth momentum into 2024 looks very good.”

The numbers are a boon for U.S. President Joe Biden, who has struggled to convince the public that the economy remains healthy, trending down from a boom after the pandemic shock.

In a speech in Wisconsin on Thursday, he argued that White House policies, including investments in green energy, roads and other infrastructure, are contributing to resilience.

“Experts have been saying since I was elected that a recession was just around the corner,” he said. “Well, we’re seeing really strong growth. There’s obviously a lot of work to do, but we’re really making progress.”

Biden said he believes the message is starting to get across.

Surveys in recent months have shown that consumer sentiment is improving. The stock market is up, gas prices are down, and unemployment remains low.

While the rise in prices since 2019 remains a bottleneck for voters, the inflation rate has also slowed, falling to 3.4% in December after rising to more than 9% in 2022.

Ha Le, who lives in California, said she is conscious that she no longer has to constantly search for the cheapest gas price.

But the 44-year-old retail worker and Democrat said it’s still difficult to accept the dramatic rise in prices of groceries and child care products in recent years.

“My general feeling about the economy is that it’s not the worst, right? We’ve recovered somewhat from the horrors of the pandemic, but it’s not a great situation,” she said.

Many economists predicted that soaring prices would cause households to cut spending and soaring borrowing costs would dampen business activity, warning of the risk of a recession or recession.

But that scenario did not materialize, with cushions from large savings left over from the pandemic, higher wage growth and other government spending. Compared to the fourth quarter of 2022, the US economy grew by her 3.1%.

There is growing speculation on Wall Street that the improving situation could prompt the Federal Reserve, which has raised interest rates sharply to combat inflation, to reverse course.

But analysts said the strength of the economy portrayed in the gross domestic product (GDP) report should ease pressure on the central bank to act quickly.

“Those looking for clues that the Federal Reserve is prepared to take a scalpel to interest rates will be sorely disappointed,” said Sophie Rand Yates, chief equity analyst at Hargreaves Lansdown. Ta.