Donald Trump Gets Bad News About America's Spending

American consumers powered the U.S. economy to better-than-expected growth in the fourth quarter of 2023, the Commerce Department's Bureau of Economic Analysis showed on Thursday, potentially undercutting former president Donald Trump's key election argument that the world's largest economy was struggling.

Earlier this month Trump, who is seeking the presidency again after serving one term in office before losing to current President Joe Biden in 2020, suggested that the economy may crash and that it was running on fumes.

"We have an economy that's so fragile and the only reason it's running now, is it's running off the fumes of what we did," Trump told an interviewer. "When there is a crash, I hope it's going to be during this next 12 months, because I don't want to be Herbert Hoover," referring to the president who presided over an economic crisis in the 1930s that came to be known as the Great Depression.

On Thursday, data from the Bureau of Economic Analysis showed that the economy accelerated at an annual rate of 3.3 percent in the fourth quarter of 2023, exceeding estimates from economists who projected growth of 2 percent. For the year 2023, the economy grew by 2.5 percent, the data showed.

Newsweek contacted the Trump campaign for comment via email on Thursday morning and will update the story with any information that will become available.

The White House hailed the news that the economy was growing.

"Wages, wealth, and employment are higher now than they were before the pandemic," President Joe Biden said in a statement. "That's good news for American families and American workers. That is three years in a row of growing the economy from the middle out and the bottom up on my watch."

The economy has been grappling with an elevated interest rate environment that has pushed up borrowing costs for mortgages, auto loans and business investment. The Federal Reserve hiked rates at the fastest pace since the 1980s to a current range of 5.25 to 5.5 percent to battle skyrocketting inflation which had at one point soared to four-decade highs.

But despite the restrictive monetary policy environment, which has helped to slow down inflation, Americans are still earning good wages, employers have retained workers and consumers are spending and powering the economy along the way.

"Overall, the economy sailed through 2023 with growth averaging 2.5 [percent] for the year, handily surpassing consensus expectations for a recession," Lydia Boussour, EY's senior economist, said in a note shared with Newsweek.

She added: "Looking ahead, we continue to see a soft landing as the most likely outcome this year even if a collection of headwinds and risks means that recession odds are around 35 percent," referring to a scenario where inflation moderates amid elevated interest rates without too much damage to the economy or jobs market.

On Thursday, data showed that personal incomes jumped to nearly $225 billion in the fourth quarter, compared with an increase of about $196 billion in the previous quarter. Meanwhile, disposable incomes also rose by 4.2 percent to nearly $212 billion for the quarter. Personal savings did decline slightly to $819 billion in the fourth quarter from $851 billion.

"The personal saving rate—personal saving as a percentage of disposable personal income—was 4.0 percent in the fourth quarter, compared with 4.2 percent in the third quarter," the Bureau of Economic Analysis said.

"Stunningly strong" economic growth

Consumers, seemingly flushed with cash, continued to spend at a rate of 2.8 percent, and propelling the economy forward at a healthy clip.

Diane Swonk, KPMG's chief economist, characterized the growth reported on Thursday as "stunningly strong" and said that it illustrated the resilience of the American consumer.

"Consumers were remarkably resilient, and even defiant, in the face of rate hikes," Swonk said in a note shared with Newsweek. "The determination of consumers to step up and step out was one of the biggest upside surprises to 2023."

Analysts pointed out that the economic data released on Thursday also showed that inflation was getting closer to the Fed's target of 2 percent, which could lead to policymakers beginning to cut rates later this year in what would be another good sign for the economy.

The personal consumption expenditures (PCE) price index—the Fed's preferred metric to judge inflation—increased by 1.7 percent during the quarter. Core PCE, which excludes food and energy prices, went up 2 percent.

"The headline data are the perfect mix of strong consumption and dropping inflation. This is exactly what you want to see if you are running the Fed and want to move rates lower this year," Jamie Cox, Managing Partner for Harris Financial Group, said. "Soft landing: runway acquired."

The positive growth data revealed this morning, could change how voters feel about the economy.

Polls have repeatedly shown that the economy will be a top issue for voters heading into the 2024 presidential election.

Some surveys have shown that Trump, the favorite to win the Republican presidential nomination, after emerging victorious in the first two early primary voting states, is viewed as a better candidate to handle the economy than the incumbent Biden.

Exit polls from the New Hampshire primary earlier this week, where Trump won by 11 points, revealed that voters who think that the economy was poor broke for the former president, according to CNN data.

But if the economy continues to improve, the dynamics of the race could shift.

Recent surveys already show that voters are beginning to feel better about the economy, including Republicans, a development that analysts say could help Biden and hurt Trump.

"Good economic news is good for Biden. A growing, vibrant economy is what Trump fears most," political consultant Jay Townsend told Newsweek.