NatWest Global Economics Head of US Michelle Girard joins Yahoo Finance Live to discuss the hotter than expected fourth-quarter GDP, which she calls a "goldilocks scenario." Despite resilient data, she still sees a recession likely by mid-2024. She notes skepticism around "the ongoing strength" of the consumer and broad economy, though "cracks" like rising delinquencies are starting to show.

Girard says the fourth-quarter GDP print shows "ongoing resilience," which combined with good inflation news, makes for a "great combination" for markets. However, she expects headwinds like savings depletion, hiring pullbacks, and a loosening job market to "pressure" consumers, leading to an eventual softening of the economy.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Angel Smith

Video Transcript

AKIKO FUJITA: Well, the US economy remains red hot. Fourth-quarter GDP came in hotter than expected, growing at an annualized rate of 3.3% versus the 2% that was expected. We've got Michele Girard NatWest Global Economics Head of US. Michelle let, me get your reaction to the number that we got today. And to what extent this alleviates some of those recession concerns.

MICHELLE GIRARD: Well, again, another report that beat expectations. Beat our own expectations. We thought we'd be closer to 1.5%. I think in particular, more good news about the consumer here. I mean, it wasn't just-- it wasn't just a component.

Like, for example, the fact, we had a smaller drawdown in inventories. Inventories were expected to be a drag on the number. They're up. If you look at some of the numbers, particularly, as I said, the strength or the beat on the consumer side. It continues to suggest ongoing resilience.

And coupled with that though, good news on inflation. The inflation numbers were in line or, perhaps, even slightly lower than expected. So for markets, a great combination where you're still seeing economic resilience, but not the inflation pressures. And so, you know, you've got almost a best of all worlds or a Goldilocks type of scenario with these numbers.

RACHELLE AKUFFO: So, Michelle, what do you think will be the turning point? Obviously, the consumer's not going to keep spending forever. They've blown through all their pandemic savings. And still seeing that credit card debt continuing to mount up. What do you think is going to be the turning point here?

MICHELLE GIRARD: Oh, I wish I knew. Because I have to say, we have been very skeptical about the ongoing strength of the consumer and the broader economy for-- to be honest, far too long.

We actually thought we might be already in a recession. And the data as reported just continued to come in. Stronger whether. We're talking about GDP or the retail-sales figures or just-- it seems like report-after-report the numbers look stronger despite, as you've noted, some cracks that are appearing.

I think, in some of the more anecdotal or survey evidence or evidence of delinquency rates ticking up. You know, I think this morning we saw more evidence with the surveys of regional manufacturing activity coming down. Being weaker. Beige Book has cited problems.

And I even think in the employment report that looked healthier. The underlying news in that report from last month was not as strong as it appears. So I think the consumer is going to continue to be pressured as you said. Savings are gone.

They've benefited from real earnings. Inflation-adjusted earnings being higher. But as the labor market loosens, as companies, I think, pull back on hiring and some of that strength sort of dissipates, I do think you're going to see a softer consumer and overall economy. We do think we'll be in a recession by the middle of 2024.