United States GDP Growth Rate – 2023

Sadik Shaikh
10 Min Read

According to the second estimate of gross domestic product (GDP), which remains unchanged from last month’s advance estimate, the economy expanded at a moderate pace during the first quarter of 2023.

Nominal GDP growth is projected to hit its maximum growth between 2023-2027 due to declining interest rates, when nominal GDP growth will cease growing altogether.


Employment growth slowed somewhat in 2023’s first quarter as economic expansion faltered, though not enough to constitute a recession. According to CBO projections, nonfarm payrolls should increase at a moderate pace through 2027 due to the economy’s weakened state not pushing interest rates back up significantly while long-term interest rates should drop further during that time period.

The economy’s lackluster first quarter performance can likely be traced to several factors, including problems in home building and inventory investment. Still, consumers continue to benefit from strong consumer spending as exports begin a rebound – in fact, Thursday’s advanced estimate of GDP showed consumer spending had actually accelerated while business investment rose slightly.

Inflation remains subdued and unemployment continues to drop, in large part because labor markets remain tight with more job vacancies than available workers. At the same time, wage inflation has been relatively moderate: according to Bureau of Labor Statistics’ estimates for private hourly wages growing at an annualized 4.4% rate during Q1, while core inflation (excluding food and energy prices ) rose 1.0% year over year during that same timeframe.

Recent rate increases from the Federal Reserve have yet to have any discernible impact on economic activity, due to a lag between when rates increase and when their negative effects become noticeable in economic activity. Therefore, headwinds for economic growth could peak around 2023 while recession is not currently in sight.

Economic slowdowns should only be temporary and employment growth should rebound by 2024 as recovery progresses. The CBO’s projections of output, unemployment, inflation and interest rates tend to fall within expectations of most participants in the Federal Reserve Bank of Philadelphia’s Survey of Professional Forecasters; however, CBO unemployment projections exceed those provided by SPF through 2025.


GDP measures the market value of all final goods and services produced within a country in any given period, accounting for both private and public production (e.g. construction, manufacturing, agriculture, utilities) as well as foreign trade net gains or losses. GDP includes both international trade as well as net foreign trade losses or gains for each nation – one measure is gross domestic product per person in an economy such as the US where its growth rate of GDP per person in an economy like its is one of the highest globally.

In 2023, the US economy is projected to expand at a slightly faster pace than it did last year. Although consumer spending and income may slow down somewhat, capital investment should increase as businesses take advantage of low interest rates.

In 2023, the economy is projected to experience a slow and gradual recovery from its effects of the pandemic, yet growth will still fall below its potential due to factors including tightened bank lending practices, the impact of COVID-19 pandemic, and Federal Reserve’s hawkish stance on monetary policy – factors which all combined to restrict growth this year. Furthermore, inflation should decline below Fed’s 2% target as housing rent and core services inflationary pressures lessen; inflationary pressures due to housing rent or core services with price reduction of food will likely diminishing pressures significantly over time.

Domestic demand should strengthen as the economy recovers from pandemic. Consumer confidence is expected to return, as should business investment as firms invest in new equipment to increase productivity. Imports will likely rise but growth may slow compared to recent years as businesses seek to decrease dependence on single suppliers and mitigate supply chain disruption risks and higher tariffs.

The United States remains an attractive choice for foreign investment due to its large consumer base, transparent legal system, highly developed infrastructure, skilled workforce and supportive business climate that fosters innovation. Foreign direct investment (FDI) had fallen slightly in the first quarter, but is expected to rebound as pandemic impacts continue their course – however the overall economic outlook is unclear until pandemic impacts can be contained quickly by governments; otherwise the economy might not return to robust growth by 2023.


An unexpectedly weak first quarter increases the odds that the US will enter technical recession by 2023, reflecting slowing consumer spending and investment activity as well as the Fed’s struggle to reduce still-high inflation without further worsening economic slowdown.

The Bureau of Economic Analysis’s advance estimate for GDP growth fell from 2.6% in the fourth quarter to an annualized rate of 1.1% annually for 2023, an unexpected and temporary slowdown caused by pandemic-related consumption declines. As the economy recovers from pandemic-induced disruption, consumption should rebound accordingly. Housing should experience a rebound, while business investment should increase as firms take advantage of low interest rates to invest in equipment. Unfortunately, however, exports and imports remain more uncertain than usual. The Russian invasion of Ukraine has created headwinds for exports, particularly petroleum products. Yet lower demand from Europe and a stronger dollar due to increased global uncertainty have rendered US goods more competitive; leading to strong real growth in real exports during the last four quarters – most significantly related to petroleum and consumer goods products.

Over the coming years, inflation is projected to decline as its effects dissipate and a stronger dollar reduces import costs – both positive developments – but growth in real personal consumption expenditures (PCE) is anticipated to remain more modest than has been the case recently.

PCE growth is projected to stop completely in the first half of 2023 due to last year’s dramatic interest rate hike, before returning at a slower pace thereafter. This will allow the Federal Reserve more leeway in controlling inflation without precipitating further economic contraction.

Longer term, the decline in real consumption should be offset by an uptick in investments and government spending; these should allow for faster economic growth than what occurred between 2021-2022. Still, consumer spending’s decrease remains a serious cause of concern.

Government Spending

The US economy began 2023 on a strong footing, with key January and February data suggesting that economic recovery remains intact despite persistent inflation, rapidly rising interest rates, and numerous predictions of recession by Wall Street forecasters.

GDP grew at an above-expected pace during the first quarter, yet remains uncertain overall.

Economic performance suffered during the first three months of 2023 due to several factors, including slower private consumption growth and net foreign trade problems. A stronger dollar is anticipated to drive net exports into negative territory this year and next, ultimately slowing real GDP growth.

Even as domestic demand slows down, business investment remains strong. Increased spending on equipment and software purchases have helped offset residential construction decreases and nonresidential fixed investment falls.

On the other hand, household incomes continue to dwindle under the impact of higher long-term interest rates. Average after-tax household income decreased 1.7 percent in the fourth quarter – evidence that households are struggling to meet rising living costs.

Government spending was one of the few bright spots during Q3, with federal nondefense spending benefitting from outlays associated with infrastructure investment legislation enacted between 2021-2022. Unfortunately, reduced discretionary outlays outlined in the fiscal responsibility bill passed last summer that averted debt ceiling crises will likely limit overall government spending and hinder GDP growth through later this year and early 2023.

Inflation has significantly eased since its peak at the height of the housing bubble, yet is still above the Federal Reserve’s 2 percent target. This could force it to raise short-term interest rates again and thus restrict economic growth within the US.

Long term, strong economies are vital to global stability and prosperity. The world’s major economies rely heavily on each other to generate jobs, fuel investment and sustain growth – as such they need to collaborate closely to ensure their economies expand at healthy rates, avoid deflationary pressures or currency crises.

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