The U.S. Economy Boomed in 2023, Thanks to Consumers Opening Up Wallets

New GDP figures show strong growth at the end of last year.

(Patrick T. Fallon/AFP/Getty Images)

The U.S. economy grew by a bustling 3.1 percent in 2023, shaking off recession fears and offering an upbeat picture of consumers and businesses ahead of a pivotal election year.

GDP grew even faster than many had anticipated in the last three months of the year — by an annual rate of 3.3 percent, according to the Bureau of Economic Analysis — offering fresh evidence that federal policymakers have managed to bring down inflation and secure a “soft landing” without major repercussions for workers or the economy.

“It’s just a perfect report: Strong growth and low inflation,” said Mark Zandi, chief economist at Moody’s Analytics. “Everything contributed to growth: Consumers, businesses, government, housing, trade, inventories. All of the economic wheels were moving in the same direction.”

U.S. gross domestic product growth

The economy’s resilience has been driven by vigorous consumer spending. A strong job market and rising wages have made it possible for many households to keep shelling out — particularly on services such as hotels, travel and dining out — even at a time of elevated inflation.

That spending by everyday Americans accounted for most of the economy’s growth in the fourth quarter. Increased government spending, at the state, local and federal levels, as well as higher exports and more private and residential investments also lifted the latest GDP reading, which sums up the goods and services produced in the U.S. economy.

The economic growth figures are a political boost for President Biden, as every year of his term has seen GDP growth, despite some struggling quarters. Last year’s 3.3 percent expansion tops GDP growth in every year of President Donald Trump’s term, including 2019, when the economy grew by 2.95 percent.

“Whichever way you slice it, this report caps a year of stellar economic growth performance,” Olu Sonola, head of U.S. regional economics at Fitch Ratings, wrote in an analyst note Thursday. “The momentum of economic growth going into 2024 is looking very good.”

It is unlikely, though, this pace of growth can continue. Economic expansion is expected to slow this year, as higher borrowing costs take their toll on spending by households and businesses. There are other risks on the horizon, too: Consumers are taking on more debt to fund their spending, and businesses likely have too much inventory on hand. Geopolitical risks, including conflict in the Middle East, are also a looming threat to the global economy.

For now, strong economic growth has distinguished the United States from its peers. Europe and Britain are on the verge of recession, and China — the world’s second-largest economy — is on slippery footing. Overall, economic growth in advanced economies is expected to slow this year, to 1.4 percent, according to the International Monetary Fund.

Government policy played an important role in supporting the economy last year. The Biden administration’s efforts to fund new infrastructure and clean energy projects have created new jobs and spurred $640 billion in private investments around the country.

Despite the economy’s strong rebound from the pandemic-inflicted recession, Biden has struggled to convince voters that his policies are making their lives better. Higher prices, particularly on essentials such as food, housing and utilities, have clouded Americans’ views on the economy, with inflation routinely topping the list of voters’ biggest concerns.

The economy is widely expected to continue slowing in 2024, after two years of torrid post-pandemic expansion. (GDP grew by 5.95 percent in 2021 and 2.06 percent in 2022.) Although some economists still expect a mild recession this year, many appear optimistic that the economy can stabilize without major job losses or a protracted downturn.

“We are coming down to more sustainable levels, both in the economy and in the job market,” said Satyam Panday, chief U.S. economist at S&P Global Ratings. “We expect a controlled, steady slowdown, not a recession.”

The Federal Reserve has aggressively raised interest rates since last year in a bid to slow the economy enough to bring down inflation. Although its efforts are working — prices are up 3.4 percent from a year ago, down from a peak of 9.1 percent in June 2022 — many Americans are still reeling from sticker shock at grocery stores and gas pumps, where costs remain elevated from pre-pandemic levels.

Still, there are signs that Americans are slowly starting to feel better about the economy as inflation eases. The consumer confidence level picked up in November and December. It is unclear, though, whether that will translate to political points for the White House.

Anthony Reilly, who owns a barber shop in Philadelphia, says business has gradually slowed in recent months as clients rethink their spending. The usual holiday boom, which begins just before Thanksgiving, wasn’t quite as dramatic this time around. January, too, is shaping up to be slower than usual.

“It feels like things are a little more up in the air, like everyone is starting to tighten their purse strings,” he said. “It’s not scary-dead, but also not crazy busy like it used to be.”

Bookings at Flowertown Bed and Breakfast in Summerville, S.C., are up across the board: More guests are staying overnight, and demand for weddings, baby showers and other events is higher than it has been in years.

“I’ve been surprised at just how steady things have been,” owner Carol Grant said. “I’m at the grocery store every other day, and the prices are just atrocious, but people are still spending. There hasn’t been any kind of slowing.”

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