US growth shatters expectations, boosting Biden’s economic pitch
The Commerce Department reported Thursday that GDP expanded 3.1 percent in 2023, a year that began with heavy odds of a recession and closed out with fourth-quarter growth that blew away projections.
The U.S. economy is growing faster than expected as inflation falls, and the Biden administration is seizing the moment in a bid to counter one of the fiercest lines of attack by former President Donald Trump.
The Commerce Department reported Thursday that GDP expanded 3.1 percent in 2023, a year that began with heavy odds of a recession and closed out with fourth-quarter growth that blew away projections. The news comes during a week bookended by sales pitches from two top officials, White House economic adviser Lael Brainard and Treasury Secretary Janet Yellen. At the heart of their message: President Joe Biden’s strategy to help the middle class is working.
“This story of the middle class is not separate from the state of the economy. It’s at the heart of it,” Yellen said in remarks in Chicago Thursday afternoon. “By middle class, I don’t mean a narrow or fixed group. I mean workers across industries and occupations— from firefighters to nurses to factory workers.”
Biden’s surrogates have a long road ahead in convincing the country, however, as Trump consistently trounces the sitting president in polling about the economy and has focused much of his campaign pitch on how historically strong he says growth was during his own administration. There are also risks that inflation could see a resurgence, either because growth has remained so robust or because of an unexpected shock like a further escalation of the conflict in the Middle East, which could push up global oil prices.
But Biden world is seeing signs of hope. Last week, a closely watched measure of consumer sentiment on the economy released by the University of Michigan surged to its highest level since 2021 as inflation has cooled to roughly 3 percent and stock prices have jumped.
“The sustainability of this trend is one of the biggest questions about the macro context for this year’s elections, and we think it has implications not just for partisan control but for the policy proposals that investors can expect to see from the Trump and Biden campaigns this year,” Tobin Marcus, a former economic adviser to Biden who now heads U.S. policy and politics at Wolfe Research, wrote in a research note.
In a roundtable with reporters Wednesday, Yellen drew a sharp contrast between Biden and Trump, who also oversaw an economy with unemployment that fell below 4 percent.
“Cutting taxes for the rich and hoping that the benefits trickle down, broadly, is not the right strategy,” she said.
The positive GDP numbers, which measure growth in the fourth quarter of 2023 from the same three-month period the previous year, were driven by strong consumer spending, suggesting that households are not hunkering down — with average growth over all four quarters of the year coming in at 2.5 percent. Biden will also speak Thursday afternoon on his administration’s infrastructure investments.
Yellen, in her speech, said household median wealth rose by 37 percent between 2019 and 2022, according to the Treasury chief’s prepared remarks, which she called “the largest three-year increase on record.” She also touted the fact that wages are now growing faster than prices, pointing to a new Treasury analysis showing that a worker earning a median wage would have $1,400 left over after buying the same goods and services that they did in 2019.
Following the speech, Yellen told reporters she sees no inflationary concern in the latest GDP numbers or anything that would threaten the Federal Reserve’s efforts to kill off high inflation without driving the economy into recession.
“It’s a good thing, reflective of strong and healthy spending, productivity improvements and most likely not creating an inflationary challenge,” she said.
Still, even though costs aren’t rising nearly as quickly as they were in the aftermath of the Covid epidemic, the price of household staples like food and housing are dramatically higher than they were three years ago. That could continue to weigh on Americans’ perceptions of the economy.
There is also a risk that the influx of good economic news could be coming too soon. Though economists generally are more optimistic that the Fed’s punishingly high rates won’t drive the U.S. into recession, growth is projected to be slower in 2024. Consumer spending, which represents about two-thirds of the economy, has gradually slowed, and higher debt costs could nudge up unemployment, which has stayed below 4 percent for two years.
Gregory Daco, chief economist at EY-Parthenon, also warned about putting too much stock into monthly consumer sentiment numbers that can move around a lot.
But Thursday’s data could buoy the trend.
“The 3.3 percent GDP increase in [the fourth quarter] of 2023 caps off a year of exceptional growth for our economy,” Rep. Brendan Boyle (D-Pa.) said in a statement shortly after the data release. “With last year’s numbers, average annual GDP growth for the first three years of the Biden administration comes in at 3.4 percent, far outpacing the 2.6 percent during the first three years of the Trump administration.”
Declan Harty contributed to this report.