The U.S. economy expanded by 2.3% quarter-on-quarter (q/q, annualized) in the fourth quarter, a touch lower than the consensus forecast of 2.6%. Growth for 2024 as a whole was 2.8%, showing little slowing from 2023’s 2.9% pace.
Consumer spending defied expectations for a slowdown, accelerating to 4.2% q/q from 3.7% in the previous quarter. The gain was driven by goods spending (+6.6% q/q), and more specifically a 12% gain in durable goods outlays. Spending on services grew by a healthy 3.1%, up from 2.8% in Q3.
Gross private domestic investment was a drag, falling 5.6% q/q. Looking at the details, non-residential investment was down 2.2% – largely on the back of a 7.8% decline in equipment spending, which came after two solid quarters of growth. Structures also fell 1.1%, while investment in intellectual property products grew 2.6%. On the other hand, residential investment improved after two quarters of contraction, rising 5.3% q/q.
Government spending provided a boost, growing at 2.5% q/q, even as this marked a deceleration from the 5.1% pace in the previous quarter. State & local government spending eased to 2% from 2.9% previously.
On international trade, both imports and exports retreated by 0.8 q/q. The end result was a wash, with net trade leading to a miniscule positive fillip for GDP.
Final domestic demand was up a healthy 3.1% q/q, a deceleration from Q3’s gain of 3.7%. Headline GDP growth was held back by weaker inventory investment, which subtracted 0.9 percentage points from the overall tally last quarter.
Core PCE inflation – the Fed’s preferred inflation gauge – rose to 2.5% q/q (annualized), a mild acceleration from Q3’s 2.2% pace.
Key Implications
The U.S. economy notched another solid quarter at the end of 2024, even as growth eased a touch from the stronger pace experienced in the third quarter. Non-residential investment and inventories weighed on growth, but the consumer helped save the day, powering growth with another outsized gain in goods spending. A meaningful improvement in residential investment also helped provide some support. The fact that the economy basically sustained 2023’s pace into 2024 is an impressive accomplishment in the face of what is still an elevated interest rate environment.
While there’s still plenty of uncertainty with changes coming out of Washington, we anticipate a more trend-like pace of growth of around 2% for the year ahead. This as the economic cycle matures, and some of the positive growth impulses from policies such as deregulation are offset by more restrictive policies on trade and immigration. Additionally, efforts to rein in government spending suggest that the fiscal growth-dividend that helped boost growth in previous years – such as in 2018-19 thanks to the Tax Cuts and Jobs Act (TCJA) – may not be there to prop up this economy this time around, reinforcing the case for a more trend-like pace of growth
