Consumer Alert: The economy soared in 2023 — here’s what that means for your wallet
This Consumer Alert focuses on three letters you may not have thought about since your high school economics class, GDP or gross domestic product. The numbers are out for 2023, and I’ve been reading the analysis of my favorite economists. Yes, I have some favorite economists. I fully embrace my nerdiness. And economists have been dissecting the gross domestic product numbers.
The GDP comprises all the goods and services produced right here in the U.S. And over the full year, our GDP grew by 3.1 percent — and 3.3 percent in the last quarter. That indicates strong economic growth.
The first analysis I wanted to read was that of Mark Zandi, Chief Economist at Moody Analytics. I like the guy because he’s wicked smart, but seemingly approachable. But don’t be fooled. The 65-year-old is a pretty serious fellow, certainly not prone to outbursts of unbridled glee.
But gleeful is the perfect adjective to describe his analysis of the GDP report.
“It’s just a perfect report: strong growth and low inflation,” Zandi told the Washington Post. “Everything contributed to growth: consumers, businesses, government, housing, trade, inventories. All of the economic wheels were moving in the same direction.”
But other economists are skeptical.
“My view is this combination of data is very, very unusual and it’s not likely to be sustained,” Tom Simons, money market economist at Jefferies in New York, told USA Today. “Either inflation is going to pick back up again, or growth has to slow. I just don’t understand how the economy can continue with this perfect, ideal, immaculate disinflation story.”
Consumer spending makes up about two thirds of GDP. And all year we kept spending. At the same time, inflation is slowing. A key inflation gauge, the PCE was released on Friday and shows year-over-year inflation increased 2.9 percent, the first time it has been below 3 percent since March of 2021.
But if you look at just the fourth quarter of 2023, inflation fell to 1.7 percent. That’s really good.
The Fed considers 2 percent inflation the sign of a healthy economy.
But some economists fear we’ll eventually pay for all that spending. I also read Beth Ann Bovino’s analysis. She’s the Chief Economist at U.S. Bank. She said, “I suspect that as people open up those credit card bills this year, they’re going to start rethinking things,” said Bovino. “They’ll be looking to spend less and trade down.”
And that could lead to a slowing economy.
So, what does all this mean for us, as consumers? All the analysts I’ve read agree the economy appears to be strong, but they disagree on how strong and how long it will stay that way. But this we know, because inflation is coming down, the Fed is likely to start lowering interest rates this year. So, if you’ve been waiting to buy a house or a car, later this year may be the time to jump.