Feb. 12, 2024
Contact: Eric Stann, 573-882-3346, StannE@missouri.edu
Photo by Deidra Ashley
In late January, the U.S. Department of Commerce reported that the gross domestic product (GDP) had increased 3.3% in the fourth quarter of 2023, a sign that the economy in the United States is growing. GDP — the total market value of the final goods and services produced within the United States in a year — helps inform decisions on taxes, spending, hiring, investing and interest rates.
Read on for a Q&A with University of Missouri economics professor Joe Haslag as he breaks down what the report means for consumers.
What does the latest report tell us?
What we're seeing is consumers are anticipating that things are going to be okay in the U.S. economy for at least six to nine months. The economic concept here stems from an idea by Milton Friedman known as the permanent income hypothesis. Instead of just focusing on how much consumers are buying, it suggests that consumer demand is influenced by their perception of their overall well-being rather than just their immediate needs. So, there's a forward-looking aspect of this that I think it's important for people to focus on. Often, we say the consumer is driving economic behavior, but they're also responding to what they believe the future economic outcomes are going to look like.
How will this report impact future interest rates as determined by the Federal Reserve?
Overall, the report suggests positive signs regarding interest rates. There is a decrease in the important inflation measure, personal consumption expenditures (PCE), which the Federal Reserve closely monitors. This suggests that interest rates may decrease as inflation expectations decline. However, increased worker productivity could push real interest rates higher. Real interest rates, which represent the actual interest rate after adjusting for inflation, are influenced by expected inflation and productivity levels. Despite potential productivity gains pushing rates up, lower inflation expectations are likely to have a greater impact in lowering rates at present.
What impact will this report have on the U.S. job market?
The U.S. job market affects this report and vice versa so the two are comingled. The report will probably signal firms to be more willing to hire because they see continued future buying habits encoded in the report itself. The firms are hopeful because consumers are hopeful. If consumers are hopeful, then the firms are thinking we should probably ramp up production or at least continue to hire people to fill any job vacancies.
What is your forecast for the 2024 economy?
I think the 2024 U.S. economy is probably going to be growing somewhere around 2.5% — give or take a percentage point. I don't see a major slowdown happening, and I don't see any real concerns. Inflation seems to be trending down, and I think there’s an opportunity to have a good economic period.
