Year-end numbers dusted Wall Street projections
By Joe Higgins, Quest 4 Quality
- For the fourth quarter of 2023, GDP increased 3.3% vs expectations of 2%
- Consumer spending, which makes up 72% of GDP, was up 2.6%
- A soft landing, i.e., no recession, now seems inevitable given low unemployment and the chance of a Fed rate cut
Q4 GDP Report
Over the past two years we have experienced a massive rise in interest rates, the best job market in 50 years and the worst inflation since the 1980s. While it wasn’t a smooth ride, it was much better than the expectations of economists. Anticipating a recession, consumers continued to travel, shop and dine out in record numbers. Retail sales increased every month in 2023, consumer confidence spiked by more than 10% and high-end travel was the rage.
It really feels like we are past the pandemic stage in our economy. The jobs market is returning to normal, inflation has receded and gasoline now averages below $3 a gallon in some markets. With 2024 only a month old, it’s still a safe bet that the economy will not go into recession, prices will continue to fall and interest rates will be cut three times this year.
The first positive economic indicator for the new year was the most important one: gross domestic product. GDP increased at a 3.3% annualized rate in Q4, blowing away The Street’s consensus view of a 2% increase. For all of 2023, GDP grew robustly by 2.5%. Following growth of 5.7% in 2021 and 1.9% in 2022, this was just another instance of the resiliency and dependability of the U.S. economy.
Consumer spending, which is 72% of GDP, was up 2.8% last year and was a significant contributor to the increase. Government spending, up 2.5%, and net exports and business investment, up 2.1%, also played a part in the strong end to 2023.
When the Federal Reserve first announced interest rate increases in March 2022, many pundits expected their actions would drive the economy into recession. If history had been a guide, we would have seen rising unemployment, a loss of confidence, reduced spending and lower wages. Instead, unemployment hit a 50-year low and consumers were “revenge spending” after emerging from the pandemic.
During this time, appliances and furniture suffered from an historic degree of backorders, sometimes taking a year to get product. Appliance manufacturers were said to have had more than a million backorders. Prices increased on most goods to the highest level in years, profitability improved and the hours worked were off the charts.
Since 2022, however, pricing began to fall as merchandise became more available, and consumers are now more price-conscious than ever.
The recession predictions were so wrong that we never even got close to an actual slowdown over the past 24 months. We added millions of jobs, reduced inflation from 9.1% to 3.4% and the Dow hit a new record close of 38,000. Wages increased along with rising prices and are actually running ahead of inflation today.
Jerome Powell, the Fed Chair, must be grinning right now as, against all odds, he pulled off the unthinkable: raising interest rates without causing a recession and nailing his hope for “soft landing.” Eight of the past 10 attempts at a soft landing by the Fed resulted in a downturn, but not this time.
What happened over the past two years resulted from a combination of luck and good planning. The notion of a “Goldilocks” economy that’s not too hot, not too cold, but just right is pretty much where we landed. Despite low unemployment and robust GDP (which is a prescription for inflation), prices have moderated. Consumers went out and remodeled kitchens, bought SUVs, traveled the country and had fun. As the kids call it, they practiced “YOLO” in all their pursuits. “You only live once!”
However, while we beat a recession that the pundits all deemed inevitable, some dark clouds still remain. I will continue to track them for you throughout the year, as always.
Joe Higgins is a 44-year veteran of GE and Whirlpool Corp. who brings his executive experience to bear as a business consultant, AVB keynoter and YSN contributor. Visit his website, Quest 4 Quality with Joe, at Q4QwithJoe.com.