US fourth-quarter growth revised to 3.4% annual pace for Oct-Dec quarter

The US economy demonstrated robust growth, expanding at a solid 3.4% annual pace from October through December, according to updated figures released by the government on Thursday.

This figure surpassed the previous estimate, which had pegged the growth rate at 3.2% for the same period.

The revised data from the Commerce Department reaffirmed that the economy had slowed down from its rapid 4.9% expansion in the preceding July-September quarter. However, despite this deceleration, the growth recorded in the last quarter of the year remained strong.

This resilient performance was driven by several factors, including increased consumer spending, exports, and business investment in both physical infrastructure and software. Notably, it marked the sixth consecutive quarter in which the economy has sustained an annual growth rate exceeding 2%, despite facing challenges such as rising interest rates.

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For all of 2023, the U.S. economy — the world’s biggest — grew 2.5%, up from 1.9% in 2022. In the current January-March quarter, the economy is believed to be growing at a slower but still decent 2.1% annual rate, according to a forecasting model issued by the Federal Reserve Bank of Atlanta.

Thursday’s GDP report also suggested that inflation pressures were continuing to ease. The Federal Reserve’s favoured measure of prices — called the personal consumption expenditures price index — rose at a 1.8% annual rate in the fourth quarter. That was down from 2.6% in the third quarter, and it was the smallest rise since 2020 when COVID-19 triggered a recession and sent prices falling.

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Stripping out volatile food and energy prices, so-called core inflation amounted to 2% from October through December, unchanged from the third quarter.

The economy’s resilience over the past two years has repeatedly defied predictions that the ever-higher borrowing rates the Fed engineered to fight inflation would lead to waves of layoffs and probably a recession. Beginning in March 2022, the Fed jacked up its benchmark rate 11 times, to a 23-year high, making borrowing much more expensive for businesses and households.

Yet the economy has kept growing, and employers have kept hiring — at a robust average of 251,000 added jobs a month last year and 265,000 a month from December through February.

At the same time, inflation has steadily cooled: After peaking at 9.1% in June 2022, it has dropped to 3.2%, though it remains above the Fed’s 2% target. The combination of sturdy growth and easing inflation has raised hopes that the Fed can manage to achieve a “soft landing” by fully conquering inflation without triggering a recession.

Thursday’s report was the Commerce Department’s third and final estimate of fourth-quarter GDP growth. It will release its first estimate of January-March growth on April 25.

With inputs from AP.