The U.S. economy grew at a surprisingly strong pace in the fourth quarter, mainly fueled by resilient consumer spending.
However, the fourth quarter data from the GDP report suggests that inflation is cooling. The GDP price index rose 1.5% for the fourth quarter, down from a 3.3% increase in the third quarter. The Personal Consumption Expenditures (PCE) Price Index, which measures inflation (or deflation) across various consumer expenses and reflects changes in consumer behavior, rose 1.7% in the fourth quarter, down from a 2.6% increase in the third quarter.
According to the “advance” estimate released by the Bureau of Economic Analysis (BEA), real gross domestic product (GDP) increased at an annual rate of 3.3% in the fourth quarter of 2023, following a 4.9% gain in the third quarter. It marks the sixth consecutive quarter of growth. This quarter’s growth was higher than NAHB’s forecast of a 0.9% increase.
For the full year, real GDP increased 2.5% in 2023, up from a 1.9% increase in 2022, and slightly better than NAHB’s forecast of 2.4%.
This quarter’s increase in real GDP reflected increases in consumer spending, exports, government spending, and private domestic investment. Imports, which are a subtraction in the calculation of GDP, increased 1.9%.
Consumer spending, the backbone of the U.S. economy, rose at an annual rate of 2.8% in the fourth quarter, reflecting increases in both services and goods. While expenditures on services increased 2.4% at an annual rate, goods spending increased 3.8% at an annual rate, led by other nondurable goods (+5.1%) and recreational goods and vehicles (+10.9%).
Both federal government spending and state and local government spending increased in the fourth quarter. The increase in state and local government spending primarily reflected increases in compensation of state and local government employees and investment in structures, while the increase in federal government spending was led by nondefense spending.
In the fourth quarter, exports rose 6.3%, reflecting increases in both goods and services.
Nonresidential fixed investment increased 1.9% in the fourth quarter, following a 1.4% increase in the third quarter. The increase in nonresidential fixed investment reflected increases in intellectual property products (2.1%), structures (3.2%), and equipment (1.0%). Additionally, residential fixed investment (RFI) rose 1.1% in the fourth quarter, down from a 6.7% increase in the third quarter. This is the second straight gain after nine consecutive quarters of declines. Within residential fixed investment, single-family structures rose 11.6% at an annual rate, multifamily structures declined 1.0%, and improvements rose 5.5%.
