Consumers are seen shopping in Rosemead, California, on Dec. 12, 2023.Frederic J. Brown | Afp | Getty ImagesEconomic growth likely slowed to its weakest pace in a year and a half to end 2023, possibly setting the stage for a more pronounced slowdown ahead, according to Wall Street economists.The consensus outlook for the fourth quarter is that gross domestic product grew at a 2% seasonally adjusted annualized pace, sliding downward from the 4.9% in Q3 and the lowest reading since the 0.6% decline in the second quarter of 2022.When the U.S. Department of Commerce releases its report on Thursday morning, Wall Street’s attention will immediately shift to signs of growth going into 2024. The report is expected to “represent a sharp deceleration” from the previous period, as noted by Bank of America economist Shruti Mishra. According to Mishra, incoming data indicate a resilient but cooling U.S. economy, driven by consumer spending, holiday spending, and strong balance sheets. BofA has a below-consensus view that GDP will slow to a 1.5% pace, largely due to slowdowns in nonresidential business fixed investment and housing, as well as a decrease in inventory restocking.According to Mishra, consumer spending is likely to slow from its current pace due to factors such as tighter financial conditions, higher energy prices, and a cooling labor market. Goldman Sachs has raised its Q4 estimate to 2.1%, citing stronger-than-expected state and local government spending as a significant factor. They also see growth holding up fairly well in 2024, ending the year at 2.1%. Investors will focus on the state of consumer spending, which accounted for about two-thirds of all activity in Q3, and inflation, particularly how the Federal Reserve might react.”We do expect the economy to slow further in 2024 as the impact of monetary tightening continues to weigh on economic activities,” said Joseph Brusuelas, chief economist at tax consultancy RSM. “However, we do not expect the economy to hit a recession.” RSM expects the GDP report to show a 2.4% gain on solid growth in consumer spending. Citigroup agrees with the consensus call of 2% growth in Q4 but sees tougher times ahead, mainly due to the lagged effect of the Fed’s previous rate cuts and potentially more enduring inflation.
