Examining Thursday’s GDP Report: Insights into the U.S. Economy’s Trajectory

The eagerly awaited GDP report for the fourth quarter of 2023 is expected to reveal a notable slowdown in economic growth, potentially marking a pivotal moment for the U.S. economy, according to insights from Wall Street economists.

The consensus among analysts anticipates a seasonally adjusted annualized growth rate of 2%, signaling a decline from the robust 4.9% recorded in Q3 and representing the slowest pace since the 0.6% contraction in Q2 2022. As the U.S. Department of Commerce prepares to release the report on Thursday, market attention is poised to shift toward discerning signals for the economy’s trajectory in 2024.

Bank of America economist Shruti Mishra notes that the report is likely to demonstrate a “sharp deceleration” from the previous period. Mishra attributes this slowdown to various factors, including a resilient but cooling U.S. economy led by consumer spending, a tight labor market, higher-than-expected holiday spending, and reasonably strong balance sheets.

Contrary to the consensus, Bank of America holds a below-consensus view, forecasting GDP growth to slow to a 1.5% pace. The bank emphasizes that parts of the economy not directly tied to consumer spending, such as nonresidential business fixed investment and housing, are expected to decline. Additionally, a slowdown in inventory restocking is anticipated to subtract nearly a full percentage point from the headline number. Looking ahead, Bank of America projects first-quarter growth in 2024 to be just 1%.

Goldman Sachs, on the other hand, recently raised its Q4 estimate to 2.1%, citing stronger-than-expected state and local government spending as a significant factor. The bank remains optimistic about growth in 2024, projecting the year to conclude with a 2.1% growth rate.

Consumer spending, which constituted about two-thirds of all activity in Q3, and inflation are identified as two crucial aspects that will command attention as investors analyze the GDP report. Goldman Sachs sees growth holding up well in 2024, while other analysts express concerns about potential headwinds, such as tighter financial conditions, higher energy prices, and a cooling labor market, impacting consumer spending.

While acknowledging an anticipated economic slowdown in 2024 due to the impact of monetary tightening, economists like Joseph Brusuelas from tax consultancy RSM do not foresee a recession. RSM expects the GDP report to reveal a 2.4% gain, fueled by solid growth in consumer spending.

Citigroup aligns with the consensus forecast of 2% growth in Q4 but anticipates challenges ahead, particularly due to the lagged effects of previous rate cuts by the Federal Reserve and potential sustained inflation.

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