Strong U.S. economic growth in 2023 Q3; Local outlook unchanged

Key Takeaways

Real GDP grew at a 4.9% rate in the third quarter of 2023, well above the long-run average. While this robust growth figure was widely anticipated, it did reinforce the expectation that interest rates will remain higher for longer as the Federal Reserve tries to wring the last of the inflationary pressure out of the economy. Growth is expected to slow again in the fourth quarter, and the outlook for next year is clouded by geopolitical conflict in the Middle East, economic weakness in China and a looming budget showdown in Congress.

The Quad Cities region is weathering the changing conditions about as well as can be expected. Our inaugural Business Outlook Survey in this Quarterly Market Report shows that the outlook for the next six months remains about the same as the performance over the last quarter. Inflation is still a large issue locally. However, hiring activity remains stable across most sectors.

Interest rates will likely remain elevated for several more months, possibly even longer, which is a concern for manufacturing and other interest rate-sensitive industries. The Federal Reserve is signaling their commitment to lowering inflation, even if it results in below trend growth for a period of time. Until the economy adjusts to this new normal, it is more vulnerable to policy errors and unforseen macroeconomic shocks like those mentioned above. A soft landing is still possible if no new shocks hit the economy, but we have entered a new phase of this cycle in which the risks are greater than a year ago.

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