5 Things to Know About U.S.’s 2023 GDP

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Why you should know: The results of the latest 4Q 2023 gross domestic product (GDP) data will give you an estimate of 2023’s GDP. It also provides you with a view of how things are in the U.S., and whether it is poised for a recession by the 1H 2024.

#1: 4Q 2023 GDP is at 3.3%

This was lower than the 4.9% recorded in 3Q 2023. But it remains relatively strong as it beat the market forecast which was 2.0%. As a result, 2023 GDP is estimated at 2.5%, higher than the 1.9% recorded in 2022. This is in line with the historical average growth rate of around 2% to 3%. One, at least for 2023, economic growth is rising despite the high-interest rates. Two, I am not seeing signs of recession at least from GDP numbers currently.

#2: Driven by higher government spending

Interestingly enough, the higher 2023 growth was driven mainly by higher government spending. It rose from a decline of 0.9% in 2022 to 4.0% in 2023. Both federal and state spending increased substantially during the period. The rollout of Biden’s long-term infrastructure programs could explain this. Meanwhile, consumption growth was still steady at 2.2% in 2023 compared to 2.5% in 2022. But worryingly enough, private investment growth declined from +4.8% to -1.2% in 2023.

#3: Private investment is worrying

The decline in private investments should worry investors in the market. For context, it has grown at a strong rate of 8.7% and 4.8% in 2021 and 2022 respectively. But a decline indicates that things are not well among companies. From the numbers, the main culprit is residential investments (house construction). It declined by 10.7% in 2023 compared to a similar contraction of 9.0% in 2022. And house prices have collapsed from US$479,500 in 4Q 2022 to 417,700 in 4Q 2023.

#4: Softer growth in 2024

The Federal Reserve (Fed) is projecting that the U.S. economic growth will be lower at 1.4% in 2024. Other reputable institutions such as the IMF (2.1%) and World Bank (1.6%) seem to think so also. However, these forecasts don’t indicate that they are expecting a severe recession for the U.S. While a technical recession is possible (2 quarters of consecutive decline), most don’t expect the U.S. economy to crash substantially.

#5: Recession probable by 1H 2024

From now until May 2024, the probability of recession ranges from 55% to 70%. Some market investors are also expecting the recession might be delayed to December 2024 where the probability is at 63%.