GDP and the Economy

Third Estimates for the Fourth Quarter of 2023

April 2, 2024

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Real gross domestic product (GDP) increased at an annual rate of 3.4 percent in the fourth quarter of 2023, according to the “third” estimate of the National Income and Product Accounts (chart 1 and table 1).¹ With the third estimate, real GDP growth was revised up 0.2 percentage point from the second estimate issued in February. In the third quarter, real GDP increased 4.9 percent.

Real GDP increased 2.5 percent in 2023 (from the 2022 annual level to the 2023 annual level), compared with an increase of 1.9 percent in 2022 (see “Real GDP for 2023”).

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The increase in fourth-quarter real GDP reflected increases in consumer spending, state and local government spending, exports, nonresidential fixed investment, federal government spending, and residential fixed investment that were partly offset by a decrease in private inventory investment. Imports, which are a subtraction in the calculation of GDP, increased (chart 2 and table 1).²

• The increase in consumer spending reflected increases in both services and goods.
• Within services, the leading contributors were health care (both outpatient and hospital services), other services (led by professional and other services), and food services and accommodations.
• Within goods, the leading contributors were other nondurable goods (led by pharmaceutical products) and recreational goods and vehicles.
• The increase in state and local government spending reflected increases in both investment (led by structures) and consumption expenditures (led by compensation of employees).
• Within exports, both goods and services increased. The increase in goods was led by petroleum. The increase in services was led by air transport and travel.
• The increase in nonresidential fixed investment reflected increases in structures (led by manufacturing structures) and intellectual property products (led by software).
• The increase in federal government spending primarily reflected an increase in nondefense spending. The increase in nondefense spending primarily reflected increases in gross investment in intellectual property products and federal government employee compensation.
• The increase in residential fixed investment primarily reflected an increase in new single-family construction. Partly offsetting this increase was a decrease in brokers' commissions and other ownership transfer costs.
• Within private inventory investment, the decrease primarily reflected decreases in retail trade industries and manufacturing that were partly offset by an increase in wholesale trade.
• Within imports, both services and goods increased. Within services, the leading contributor to the increase was travel. Within goods, the increase was led by computers.

Compared to the third quarter of 2023, the deceleration in real GDP in the fourth quarter primarily reflected a downturn in private inventory investment and slowdowns in federal government spending and residential fixed investment. Imports decelerated.

Real gross domestic income (GDI)—which measures output of the economy as the costs incurred and the incomes earned in the production of goods and services (as measured by GDP)—increased 4.8 percent at an annual rate in the fourth quarter, compared with an increase of 1.9 percent in the third quarter. The average of real GDP and real GDI—a supplemental measure of U.S. economic activity that equally weights GDP and GDI—increased 4.1 percent, compared with an increase of 3.4 percent.

The third estimate of GDP includes estimates of GDP by industry, or value added—a measure of an industry's contribution to GDP. In the fourth quarter, private goods-producing industries increased 7.0 percent, private services-producing industries increased 2.6 percent, and government increased 3.1 percent (chart 3 and table 2). Overall, 18 of 22 industry groups contributed to the fourth-quarter increase in real GDP (chart 4).

• Within private goods-producing industries, the largest contributors to the increase were nondurable goods (led by petroleum and coal products and chemical products), durable-goods manufacturing (led by machinery), and construction.
• Within private services-producing industries, the increase was led by retail trade (primarily, motor vehicle and parts dealers); health care and social assistance (led by ambulatory health care services); utilities; and professional, scientific, and technical services (led by computer systems design and related services).
• The increase in government reflected increases in state and local government and federal government.

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Real gross output—principally a measure of an industry's sales or receipts, which includes sales to final users in the economy (GDP) and sales to other industries (intermediate inputs)—increased 2.4 percent in the fourth quarter (chart 5 and table 3). Private goods-producing industries increased 3.7 percent, private services-producing industries increased 2.0 percent, and government increased 1.8 percent. Overall, 13 of 22 industry groups contributed to the increase in real gross output.

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The U.S. Bureau of Economic Analysis' (BEA's) featured measure of inflation for the U.S. economy, the price index for gross domestic purchases (goods and services purchased by U.S. residents), increased 1.9 percent in the fourth quarter after increasing 2.9 percent in the third quarter (chart 6 and table 4).

Within gross domestic purchases, food prices increased 1.4 percent in the fourth quarter after increasing 1.9 percent in the third quarter. Prices for energy goods and services decreased 2.9 percent after increasing 16.1 percent. Excluding food and energy, gross domestic purchases prices increased 2.1 percent after increasing 2.5 percent.

The price index for personal consumption expenditures (PCE) increased 1.8 percent in the fourth quarter after increasing 2.6 percent in the third quarter. The increase in PCE prices reflected an increase in prices for services that was partly offset by a decrease in prices for goods.

• Within services, price increases were widespread. The leading contributors were housing and utilities (mainly accounted for by housing) and health care (led by hospitals).
• Within goods, the leading contributors to the decrease were gasoline and other energy goods (led by motor vehicle fuels, lubricants, and fluids) and recreational goods and vehicles (led by information processing equipment) that were partly offset by increases in other nondurable goods (led by pharmaceutical products) and food and beverages.

Excluding food and energy, the “core” PCE price index increased 2.0 percent in the fourth quarter, the same increase as in the third quarter.

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In the third estimate of the fourth quarter, the growth rate in real GDP was revised up 0.2 percentage point from the second estimate (table 5). The updated estimates primarily reflected upward revisions to consumer spending, nonresidential fixed investment, and state and local government spending that were partly offset by downward revisions to private inventory investment and exports. Imports were revised down.

• Within consumer spending, an upward revision to services was partly offset by a downward revision to goods.
• For services, the revision primarily reflected upward revisions to health care (both outpatient and hospital services), other services (led by professional and other services as well as social services and religious activities), and financial services and insurance (mainly financial service charges, fees, and commissions).
• For goods, the downward revision was led by food and beverages.
• The revision to nonresidential fixed investment reflected upward revisions to structures, intellectual property products, and equipment.
• For structures, the revision primarily reflected upward revisions to manufacturing as well as commercial and health care structures. These upward revisions were partly offset by a downward revision to mining exploration, shafts, and wells.
• The upward revision to intellectual property products reflected an upward revision to research and development.
• The revision to equipment was led by information processing equipment (notably, computers and peripherals).
• The upward revision to state and local government spending was led by structures (mainly educational structures as well as highways and streets).
• Within private inventory investment, the revision primarily reflected a downward revision to nonfarm.
• Within exports, the downward revision was to services, led by other business services (which includes financial services).
• Within imports, the revision was led by services (notably, telecommunications, computer, and information services).

Measured in current dollars, profits from current production (corporate profits with the inventory valuation adjustment (IVA) and the capital consumption adjustment (CCAdj)) increased $133.5 billion, or 4.1 percent at a quarterly rate, in the fourth quarter after increasing $108.7 billion in the third quarter (table 6). Profits of domestic financial corporations increased $5.9 billion, profits of domestic nonfinancial corporations increased $136.5 billion, and rest-of-the-world profits decreased $8.9 billion.

Estimates of corporate profits were affected by several legal settlements that were finalized in the fourth quarter. Settlements are recorded in the National Income and Product Accounts (NIPAs) on an accrual basis in the quarter when the settlement is finalized, regardless of when they are recorded on a company's financial statement. Notably, in the fourth quarter, the following settlement reduced corporate profits:

• Binance agreed to pay penalties and fines totaling $4.3 billion ($17.3 billion at an annual rate) for violating criminal anti-money-laundering guidelines, failing to register as a money-transfer business, and violating multiple sanctions programs.

The estimate of GDI was not impacted by these settlements, because they were recorded in the NIPAs as business current transfer payments to the federal government, which offset the reductions to corporate profits.

Industry profits (corporate profits by industry with IVA) increased $140.5 billion, or 3.9 percent at a quarterly rate, in the fourth quarter after increasing $106.5 billion, or 3.0 percent, in the third quarter (chart 7 and table 7). Domestic profits increased $149.5 billion in the fourth quarter, primarily reflecting increases in other nonfinancial industries and manufacturing that were partly offset by a decrease in utilities.

Profits after tax (without IVA and CCAdj)—BEA's profits measure that is conceptually most like the profits for companies in the Standard & Poor's 500 Index—increased $78.5 billion in the fourth quarter after increasing $114.9 billion in the third quarter.

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Real GDP increased 2.5 percent in 2023 (from the 2022 annual level to the 2023 annual level), compared with an increase of 1.9 percent in 2022. The increase in real GDP in 2023 primarily reflected increases in consumer spending, nonresidential fixed investment, state and local government spending, exports, and federal government spending. These increases were partly offset by decreases in residential fixed investment and private inventory investment. Imports decreased (chart 8 and table 8).

• The increase in consumer spending reflected increases in both services and goods. Within services, the leading contributor to the increase was health care (both outpatient services and hospitals). Within goods, the leading contributors to the increase were recreational goods and vehicles, other nondurable goods (led by pharmaceutical products), and motor vehicles and parts.
• The increase in nonresidential fixed investment reflected increases in structures and intellectual property products (mainly software) that were partly offset by a decrease in equipment (mainly computers and peripheral equipment).
• The increase in state and local government spending reflected increases in gross investment in structures and in compensation of state and local government employees.
• The increase in exports reflected increases in both goods (mainly other exports of goods and automotive vehicles, engines, and parts) and services (led by travel).
• The increase in federal government spending reflected increases in both nondefense (led by lower sales of crude oil) and defense spending (led by services).
• The decrease in residential fixed investment reflected decreases in new single-family housing construction and brokers' commissions.
• The decrease in private inventory investment primarily reflected a decrease in wholesale trade industries.
• Within imports, the decrease primarily reflected a decrease in goods (mainly durable consumer goods, except food and automotive).

Real GDI increased 0.5 percent in 2023 after increasing 2.1 percent in 2022. The average of real GDP and real GDI increased 1.5 percent in 2023, compared with an increase of 2.0 percent in 2022.

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For GDP by industry in 2023, private goods-producing industries increased 2.7 percent, private services-producing industries increased 2.7 percent, and government increased 1.4 percent (table 9). Overall, 17 of 22 industry groups contributed to the increase (chart 9).

• Within private goods-producing industries, the leading contributor to the increase was mining.
• Within private services-producing industries, the leading contributors to the increase were retail trade; professional, scientific, and technical services; health care and social assistance; and information. Partly offsetting these increases were decreases in finance and insurance as well as wholesale trade.
• The increase in government reflected increases in state and local government as well as federal government.

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