Despite fears of a recession following the Federal Reserve’s raising of interest rates to cut inflation, the US economy saw real growth of 3.1% in 2023. A large part of this growth was driven by consumer spending as households are spending more money on travel and entertainment. However, another substantial driver of growth has been government spending on infrastructure and partnerships with the private sector to build factories. Exports also grew at a faster rate than imports in 2023, contributing to a net increase in GDP as well.
While many are breathing a sigh of relief, others are concerned that the US economy’s performance will not continue into the next year as government spending slows. Additionally, many consumers have spent through their savings and are now turning to credit cards. Coupled with the restarting of student loan repayments, many are expecting consumer spending to dramatically slow in the upcoming year. Nevertheless, the US economy is still expected to perform better than most developed countries, which are still struggling with their recovery.
Discussion Questions:
- What is the “spending multiplier” and how has it affected this year’s GDP?
- Explain how the use of credit cards or other forms of debt affects GDP.
Sources| Washington Post: https://www.washingtonpost.com/business/2024/01/25/gdp-2023-economy-boom/; Unsplash: Photo by Adam Nir on Unsplash