What Thursday’s Quarterly GDP Report Will Tell Us About the State of the US Economy

If forecasters are correct, U.S. economic growth slowed sharply in the fourth quarter as high interest rates dragged the economy down, ending a surprising burst of growth fueled by consumer spending.

The output of the economy as measured by gross domestic product is expected to have grown at an inflation-adjusted annual rate of 2% in the fourth quarter, according to a survey of economists by Dow Jones Newswires and the Wall Street Journal. That would be less than half the 4.9% pace of the third quarter and the slowest in more than a year. The Bureau of Economic Analysis will release official figures on Thursday.

If forecasts hold, the GDP figure would highlight how the Federal Reserve’s campaign of anti-inflation interest rate hikes has taken a toll on the economy, although far less than most economists had anticipated. Since March 2022, the Fed has raised its benchmark fed funds rate to a 22-year high and held it there, putting upward pressure on interest rates for all kinds of credit, including mortgages, car loans, and credit cards.

The Fed’s goal, by making loans costlier, was to rebalance supply and demand and push down 2022’s rampant inflation by discouraging borrowing and spending—at the inevitable cost of reducing economic growth. The downtick in GDP growth is far milder than the recession and mass layoffs that many economists had predicted back in 2022, partly because consumers have kept spending with wild abandon despite higher borrowing costs.

To be sure, the actual GDP figures could be much higher or lower than the estimates, with a greater chance of a downside surprise, Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a commentary.

And the day-ahead forecasts could be less accurate than they have been in the past, Shepherdson said. Government data that have since 2016 come out the day before the GDP report—namely, information on business inventories and trade, which are part of the GDP calculation—are now scheduled to be released at the same time as Thursday’s report.

“The GDP numbers have much greater potential to surprise than will be appreciated by investors without pre-2016 experience,” Shepherdson said.

Another estimate of GDP growth—The Federal Reserve Bank of Atlanta’s GDP Now tracker—showed it growing faster, at an annual rate of 2.4%. The tracker provides a running estimate of the GDP forecast based on data as it’s released throughout the quarter, in real-time.