Despite a slowdown in 2023, the U.S. economy has demonstrated resilience as it ends the year with robust growth. Key factors like a strong job market, rising wages, and the use of savings accumulated during the pandemic sustained consumer spending in the face of inflation and higher interest rates.
The economy is expected to achieve a 2.5% growth in Gross Domestic Product (GDP), adjusted for inflation, over 2022, surpassing initial forecasts. The GDP growth rate was 3.2% for the first three quarters, peaking at 5.2% in the third quarter. However, projections from the Federal Reserve Bank of Atlanta’s GDPNow model suggest a slowdown to 1.2% in the fourth quarter.
Gross Domestic Income (GDI), which includes wages, rent, and corporate profits, increased by 1.5% in the third quarter, adjusted for inflation. This marked the fourth consecutive quarter where GDI growth lagged behind GDP, signaling an economic slowdown, though not a halt in growth.
Consumer spending growth slowed to 0.2% in October, the lowest since May, aligning with cautious spending habits. Retail sales also dipped slightly in October, with a notable decrease in spending on items like automobiles and furniture, but increased expenditure on travel, health care, and housing.
Pandemic-induced excess liquidity is diminishing, and tighter credit conditions are impacting consumer purchasing power, despite stable job and wage growth. October saw steady hiring but a decrease in job openings and a slight rise in unemployment.
On an encouraging note, the Personal Consumption Expenditures Index, the Federal Reserve’s preferred inflation measure, fell to 3% year-over-year in October, the lowest in over two years. Personal finances remain strong, with personal spending and disposable income growing by 5.3% and 7% year-over-year in October, respectively.
For additional insights, see the NRF’s Monthly Economic Review.
