Weekly Economic Trends and Indicators
The Headlines:
According to the Bureau of Economic Analysis, U.S. real gross domestic product (GDP) increased at a seasonally adjusted annual rate of 2.3% in the 4th quarter of 2024. This was down slightly from a 3.1% growth rate in the 3rd quarter. Real GDP increased at a rate of 2.8% for the year, compared to 2.9% in 2023. The personal consumption expenditures (PCE) price index, a measure of inflation, rose 2.3% in the 4th quarter compared to 1.5% in the 3rd quarter. For the year, the PCE price index increased 2.5% compared to 3.8% in 2023.
The Details:
As has frequently been the case over the last several quarters, the largest contributor to GDP growth was personal consumption spending, which increased at a seasonally adjusted annual rate of 4.2%. Gross domestic private investment decreased by 5.6%, the largest decline since the 1st quarter of 2023. Both exports and imports were also down for the first time since the 2nd quarter of 2023. Government spending increased by a modest 2.5%.
The decline in investment was mostly due to a decrease in equipment purchases by businesses. Because these purchases were unusually high in the 2nd and 3rd quarters, this could simply be mean reversion. Overall, the decline in investment along with the change in inventories decreased the real GDP growth rate by about one percentage point.
Inflation in service prices outpaced inflation in goods prices in the quarter, continuing a theme that began in mid-2022. Non-durable goods prices only rose by 0.5% in 2024 according to the PCE price index. Durable goods prices actually fell by 2.0% over the year. Meanwhile, service prices rose by 3.9%, down from 5.1% in 2023, but still uncomfortably high.
The Context:
This GDP report was slightly below expectations. Over the course of the quarter, the Atlanta Fed GDPNow forecast was estimating growth closer to 3%, but cut their forecast sharply in the days leading up to the release of the data. The Blue Chip consensus forecast started out the quarter lower and rose to around 2.3% while economists surveyed by the Wall Street Journal expected about 2.5%.
This suggests that while the Fed’s interest rate cuts started to influence the economy during the quarter, holding rates higher for longer took a little more steam out of the economy than some expected, but not so much as to cut off growth entirely. The fact that growth was still above 2% will give the Fed cover to continue the pause on rate cuts, possibly until summer or later.
The Atlanta Fed GDPNow forecast for the current quarter (1st quarter 2025) is 2.9% while the Blue Chip consensus is just over 2%. Next week, we will get our first look at employment data in the quarter with the January jobs report. Market expectations are for over 200,000 new jobs this month, which would be consistent with continued GDP growth in the 2% range.
Next week: National employment update
