Intelligent Investment

Economic Watch: Q4 2023 GDP Exceeds Expectations, Likely Signaling a Soft Landing

January 25, 2024 2 Minute Read


Executive Summary

  • U.S. GDP increased by 3.3% on an annualized basis in Q4 2023, handily surpassing expectations of 2%.
  • Strong growth was accompanied by good news on the inflation front, with the Core Personal Expenditures Price Index meeting the Federal Reserve’s 2% target in Q4. This should keep the Fed on track to cut short-term interest rates by May.
  • CBRE expects the U.S. economy to slow this year and achieve a rare soft landing rather than a full-blown recession. However, rising real interest rates and global economic weakness are major headwinds.
  • Slowing growth and lower inflation should drive the 10-year Treasury yield down to 3.6% by year-end. This will support a recovery in investment activity in the second half of the year.

Q4 2023 GDP

Strong consumer spending, business investment and government expenditures contributed to GDP growth of 3.3% in Q4, easily beating Wall Street expectations of 2% growth. Consumers continued to spend on both goods and services. Business investment was generally strong across the board, with notable spending on structures. Government spending also was strong. On the inflation front, the Core Personal Consumption Expenditures Price Index met the Fed’s 2% target in Q4 on a quarterly basis.

CBRE Forecast

While core inflation fell in Q4, jobless claims from a week ago were higher than expected. This illustrates the balance of risks that the Fed must consider going forward. As such, we anticipate the Fed will cut the federal funds rate by May. Amid slowing growth and rate cuts, we anticipate the 10-year Treasury yield will slowly decline, ending the year at 3.6%. A very rare soft landing for the economy seems most likely.

Healthy economic growth bodes well for leasing demand, which we expect will be resilient in 2024. As the Fed cuts short-term rates and long-term rates fall, we expect investment activity to pick up in the second half of the year.

CBRE House View

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