GDP: A Pretty Solid Close to 2023

By at 25 January, 2024, 2:35 pm

by Raymond J. Keating –

U.S. real GDP for 2023 closed on a pretty solid note in the fourth quarter, although economic growth for the entire year meant that 2023 ranked as another under-performer.

Before diving into some of the key data from the latest GDP report from the U.S. Bureau of Economic Analysis, let’s get some quick context.

GDP has been badly lagging.

Namely, U.S. economic growth has badly lagged its historical norm since at least 2007. Consider that from 1950 to 2006, real annual GDP growth averaged 3.6 percent. But from 2007 to 2023, real growth averaged a meager 1.8 percent.

If we factor out the pandemic years of 2020 and 2021, then growth averaged 1.9 percent since 2007. In effect, the U.S. economy has grown at half of the historical norm for the past 17 years.

So, how do the latest numbers compare or fit in?

Respectable growth for Q4.

Real annualized GDP grew at a respectable 3.3 percent in the fourth quarter of 2023. However, for the entire year of 2023, real GDP again under-performed at 2.5 percent.

Unfortunately, excluding the two pandemic years, the top annual real growth rate that the U.S. has experienced over the past 17 years was only 3.0 percent in 2018.

Focusing on the latest numbers for the fourth quarter of 2023, the 3.3 percent growth rate was a slowdown from the third quarter’s 4.9 percent, but far faster than the second quarter’s 2.1 percent and the first quarter’s 2.2 percent.

Real personal consumption expenditures grew by 2.8 percent in the fourth quarter, which again was a slowing from the previous quarter but still fairly solid.

Also, real exports showed strong growth (+6.3 percent) for the second straight quarter, which is welcome considering the many concerns lurking on the trade front.

Underlying “real” concerns.

However, there were real concerns in fourth quarter GDP data as well. Foremost, real nonresidential fixed investment (i.e., business investment) only grew at 1.9 percent in the fourth quarter, which made for two consecutive sluggish quarters in a row (the third quarter came in at 1.4 percent). That’s troubling for current and future growth.

Residential (housing) investment came in even more sluggish at 1.1 percent. After nine consecutive quarters of declines, residential investment had grown by 6.7 percent in the third quarter.

Finally, while exports grew rather robustly, real imports only expanded by 1.9 percent, after growing by 5.9 percent in the third quarter. Given that imports are a gauge of the domestic economy – after all, nearly all imports are inputs to domestic businesses – the slowdown in import growth warrants watching.

What lies ahead? Policies matter.

In general, most watchers were pleasantly surprised by 3.3 percent growth in the fourth quarter. Of course, attention now turns to 2024, and our concern is that while the Fed might stop bashing the economy with higher interest rates (depending on how inflation performs), the White House and Congress leave entrepreneurs, investors, businesses, and workers wondering if they’ll ever come together to get serious about reducing growth-undermining costs, for example, in terms of tax and regulatory burdens, trade protectionism, and mounting government spending and debt.

The passage of a tax restoration and extension package by the House Ways and Means Committee (40-3) last week is a step in right direction. Now, the full Congress needs to get behind this package (as well as more tax relief in the future) and advance similar pro-growth policies that will enable sustainable GDP growth over the long term.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest books on the economy are The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist and The Weekly Economist II: 52 More Quick Reads to Help You Think Like an Economist.


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