As the U.S. Department of Commerce prepares to release its report on the fourth-quarter gross domestic product (GDP), Wall Street's attention is focused on the signs of growth going into 2024. Economists predict that economic growth likely slowed in the final quarter of 2023, setting the stage for a potential slowdown ahead.

According to the consensus outlook, the fourth-quarter GDP is expected to show a 2% seasonally adjusted annualized pace. This would be a decline from the robust 4.9% growth seen in the previous quarter and the lowest reading since the second quarter of 2022, when the economy faced a decline of 0.6%.

Bank of America economist Shruti Mishra believes that the upcoming report will signify a significant deceleration compared to the previous period. She points to incoming data that suggests a resilient, yet cooling, U.S. economy. This is driven by consumer spending supported by a tight labor market, higher-than-expected holiday spending, and solid balance sheets.

However, BofA has a below-consensus view, forecasting that GDP will slow to a 1.5% pace. Mishra attributes this to sectors of the economy not directly related to consumer spending, such as nonresidential business fixed investment and housing, which are expected to tail off. Additionally, a slowdown in inventory restocking is predicted to reduce the headline number by close to a full percentage point. BofA also forecasts a modest growth of just 1% in the first quarter of 2024.

Goldman Sachs, on the other hand, raised its Q4 estimate to 2.1%, citing stronger-than-expected state and local government spending as a significant factor. This boosted growth in the third quarter by nearly a full percentage point and is anticipated to continue with a 4.5% increase in the final months of the year. Goldman's economists also expect growth to hold up well through 2024, ending the year at 2.1%.

As investors await the GDP report, their focus will be on two key elements: the state of consumer spending, which accounted for about two-thirds of all activity in Q3, and inflation. It is anticipated that consumer spending will slow due to tighter financial conditions, higher energy prices, and a cooling labor market. Furthermore, attention will be on how the Federal Reserve might react to Thursday's report on personal consumption prices and a separate release from the Commerce Department on Friday.

Despite expectations of a slowdown, economists do not anticipate a recession. RSM, a tax consultancy, expects the GDP report to show a 2.4% gain driven by solid growth in consumer spending. However, some economists caution that December's larger-than-expected retail sales increase may have been influenced by seasonal distortions that could be corrected in January.

Citigroup aligns with the consensus call of 2% growth for Q4 but expresses concerns over the impact of previous rate cuts by the Fed and the potential for more durable inflation. Analysts caution against assuming that the forthcoming data will continue to represent ideal economic conditions throughout the year.

As Wall Street eagerly awaits the GDP report, the outlook for growth in the U.S. economy remains uncertain. The upcoming data will provide valuable insights into the state of the economy and its potential trajectory into 2024.