Thursday's GDP report is expected to show that the US economy is at a crossroads

With the US Commerce Department's report released Thursday morning, Wall Street's attention will almost immediately turn to signs of growth through 2024.

The report likely “represents a sharp slowdown” from the previous period, Shruti Mishra, an economist at Bank of America, said in a note to clients. “Incoming data continues to point to a resilient, but tepid, U.S. economy, led by consumer spending on the back of a tight labor market, higher-than-expected holiday spending, and fairly strong balance sheets.”

Bank of America has a less-than-consensus view that gross domestic product — the sum of all goods and services produced during this period — will slow to a 1.5% pace, largely due to parts of the economy not directly linked to consumer spending, such as fixed investment. In non-residential and housing businesses, you will tail off.

In addition, the bank expects the slowdown in inventory restocking to shave nearly a full percentage point off the headline number.

Looking ahead, Bank of America expects the first quarter of 2024 to show growth of just 1%.

“Consumer spending is likely to slow from its current pace due to the lagged effects of tightening financial conditions, rising energy prices and a slowing labor market,” Mishra said.

Elsewhere on Wall Street, expectations are mixed.

Goldman Sachs earlier this week raised its fourth-quarter estimate to 2.1%, an increase of 0.3 percentage points, raising its full-year GDP forecast to 2.8%. One important factor Goldman sees is stronger-than-expected state and local government spending, which boosted third-quarter growth by about a full percentage point and is expected to show a 4.5% increase in the final three months of the year.

Economists at the bank also see growth holding up fairly well into 2024, ending the year at 2.1%.

Two other key elements will be in focus as investors digest the GDP report: the state of consumer spending, which accounted for about two-thirds of total activity in the third quarter, and inflation, specifically how the Fed may react to what personal consumption prices are coming. From Thursday's report as well as a separate Commerce Department statement on Friday.

“We expect the economy to slow…further in 2024 as the impact of monetary tightening continues to weigh on economic activities,” said Joseph Brusuelas, chief economist at tax consultancy RSM. “However, we do not expect the economy to reach recession.”

RSM expects the GDP report to show a 2.4% increase thanks to strong growth in consumer spending, although some economists say the December report Greater than expected increase in retail sales Fueled by seasonal distortions in the data that will be corrected in January.

Citigroup agrees with the consensus call for 2% growth in the fourth quarter but expects tougher times ahead, mainly due to the delayed effect that previous Fed rate cuts will have, as well as inflation that may turn out to be more sustainable than expected.

“The data has been released [Thursday] “It may turn out later to document a quarter of true mild conditions,” Citi economist Andrew Hollenhorst wrote. “But we don’t share the market and the Fed’s upbeat macroeconomic assessment over the remainder of the year.”

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