Inflation declines in the fourth quarter; GDP growth remains strong

Real GDP in the U.S. grew at a 3.3% rate in the fourth quarter of 2023, down from the previous quarter’s 4.9% growth, but still above average. Tight monetary policy to fight inflation is acting as a headwind against the economy and beginning to slow down the pace of growth. The economy is expected to slow further in 2024; however, more analysts are expecting a “soft landing” rather than a recession.

Nationally, manufacturing has slowed more than the rest of the economy during the latter part of 2023. As the Quad Cities economy is relatively more concentrated in manufacturing, this has been felt locally. Our Business Outlook Survey shows that local manufacturers have experienced a decrease in the level of business activity in the fourth quarter compared to the third quarter. However, survey respondents expect conditions to improve over the next six months.

Among non-manufacturers in the Quad Cities, our survey respondents have a generally positive view of current economic conditions and most expect conditions to remain the same or improve over the next six months.

Inflation remains a concern of local businesses, largely because of continuing wage pressure. However, nationally we are starting to see some easing of wage pressure. Inflation expectations are trending downward. The personal consumption expenditures inflation rate is now at 2.6%, down from 3.4% at the end of the third quarter.

Expectations are for the Federal Reserve to begin cutting the policy interest rate sometime between May and July. Until then, interest-sensitive industries will remain under pressure. Due to falling inflation causing credit conditions to tighten further, economic performance is likely to be mixed across the various sectors, and job growth could slow down compared to the rapid pace of 2023.

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