GDP Report: Economy Grew by 3.4% in Fourth Quarter of 2023

Fourth-quarter growth came in slightly above estimates, but is down from the third quarter's scorching 4.9% growth.
Anna Helhoski
By Anna Helhoski 
Edited by Rick VanderKnyff

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The U.S. GDP grew slightly higher in the fourth quarter of 2023 than previous estimates showed, according to the latest figures in the third estimate of real gross domestic product from the Bureau of Economic Analysis released on March 28.

The GDP is the market value — in current dollars — of all goods and services produced within the United States in a given period; Real GDP adjusts that measure for inflation. Changes in GDP are expressed on an annualized basis.

The fourth quarter — October, November and December — saw an annual growth rate of real GDP by 3.4%, up from the second estimate of 3.2% and advance estimate of 3.3%. The growth rate was lower than the third quarter, but higher when compared to the annual growth earlier in the year:

  • 4.9% annual rate of growth in Q3 2023.

  • 2.1% annual rate of growth in Q2 2023.

  • 2.1% annual rate of growth in Q1 2023.

How did GDP in 2023 compare to recent years?

In 2020, at the beginning of the COVID-19 pandemic, the annual rate of GDP dropped to levels far below even those during the Great Recession, federal data shows. By the end of 2020 and into 2021, GDP rebounded quickly. However, the first two quarters of 2022 showed signs of slowing down before a more robust finish at the end of the year.

GDP continued its upward trajectory throughout 2023: Real GDP increased 2.5% in 2023, a 0.6 percentage point increase from real GDP in 2022 (1.9%). That rise was largely due to consumer spending, nonresidential fixed investment, state and local government spending, exports, and federal government spending. GDP growth was partly offset by decreases in residential fixed investment and inventory investment. Imports, which are not included in the total GDP calculation, decreased.

Here’s what else factored into overall GDP in 2023:

  • The Current-dollar GDP increase slowed, rising 6.3% (about $1.61 trillion) in 2023, compared with a 9.1% increase in 2022. 

  • The price index for gross domestic purchases increased 3.4% in 2023. Compare that with a 6.8% increase in 2022. 

  • The Personal Consumption Expenditures price index increased 3.7% in 2023, compared with 6.5% in 2022. The core PCE — minus food and energy — increased 4.1% compared with an increase of 5.2%. The Federal Reserve watches the core PCE closely when determining rate hikes.

Why did GDP increase in Q4 2023?

The increase in real GDP was largely due to increases in consumer spending, exports, state and local government spending, nonresidential fixed investment, federal government spending and residential fixed investment, according to the report.

At the same time, private inventory investment decreased and imports went up. Imports subtract from GDP.

Changes to acceleration in GDP

Compared with Q3 2023, the report says the deceleration in GDP in Q4 2023 was caused by the decline in private inventory investment, as well as slowdowns in:

  • federal government spending.

  • residential fixed investment— that includes all purchases of private residences and residential equipment owned by landlords and rented to tenants. 

What did consumers spend money on in Q3 2023?

Consumer spending increased in both services and goods. Here’s the breakdown of spending:

Goods: Increases were led by nondurable goods (primarily pharmaceutical products) and recreational goods and vehicles (primarily computer software).

Services: Increases were led by food services and accommodations, as well as health care.

Excluding food and energy (which have the most volatile prices), the PCE price index increased 2.1% in Q4 2023 — slower than previous quarters:

  • 2.3% in Q3 2023

  • 3.7% in Q2 2023.

  • 5.0% in Q1 2023.

  • 4.7% in Q4 2022.

How did personal income change in Q4 2023?

Personal income increased in Q4 2023 while personal savings slowed, according to the report.

  • Current-dollar personal income (all sources of income including wages and salaries, government benefits, dividends and interest, business ownership and more) increased $230.2 billion in Q4 2023, according to the revised report. In Q3 2023, current-dollar personal income increased $196.2 billion.

  • Disposable personal income (equal to personal income minus taxes) increased 3.8% in the fourth quarter of 2023 compared to a 2.9% increase in the third quarter. Real disposable personal income also increased 2% in the fourth quarter compared to a 0.3% increase in the third quarter.

  • The rate of personal savings (personal savings as a percentage of disposable personal income) slowed in Q4: 4% compared with 4.2% in Q3 2023. 

Advance estimates of the GDP of the first quarter of 2024 will be released on April 25.

Photo by Justin Sullivan/ Getty Images News via Getty Images

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