Q1 GDPNow forecast has dropped to -2.8% from -1.5%
US Economy Grew Steadily, Inflation More Persistent at 2024’s End
The US economy maintained a solid pace of growth in the final quarter of 2024, while inflation proved to be more stubborn than originally estimated.
According to data released Thursday by the Bureau of Economic Analysis, gross domestic product (GDP) expanded at an annualized 2.3% rate in the fourth quarter—unchanged from the initial estimate. The economy’s primary driver, consumer spending, surged at a 4.2% pace.
However, inflation showed more resilience than expected. The Federal Reserve’s preferred inflation gauge—the personal consumption expenditures (PCE) price index excluding food and energy—rose 2.7%, up from the initially reported 2.5%, largely due to higher services costs.
Key Economic Data Revisions
| Metric | Second Estimate | First Estimate |
|---|---|---|
| GDP (QoQ) | +2.3% | +2.3% |
| Personal consumption | +4.2% | +4.2% |
| PCE price index (excl. food & energy) | +2.7% | +2.5% |
| Residential investment | +5.4% | +5.3% |
| Nonresidential investment | -3.2% | -2.2% |
A Resilient But Cooling Economy
The fourth-quarter report highlights an economy that continued to expand, fueled by robust consumer spending. However, while many Americans are benefiting from strong wage growth and hiring, higher interest rates and the rising cost of living are weighing more heavily on lower-income households.
Looking ahead, economic growth is expected to slow. After expanding 2.8% in 2024, GDP is projected to rise 2.3% in 2025 as cooling job growth dampens consumer demand. Additionally, Federal Reserve officials remain cautious about interest rate cuts, as inflation remains sticky.
January’s PCE report, due Friday, is forecast to show core inflation rising 2.6% year-over-year. Monthly data is also expected to show the first decline in inflation-adjusted consumer spending in a year, following a strong holiday shopping season.
Jobless Claims Surge
A separate government report released Thursday showed that initial jobless claims jumped by 22,000 last week—the highest level so far this year.
Beyond consumer spending, the GDP report also reflected stronger government spending but weaker business investment than initially reported. Equipment spending fell at a 9% annualized rate, while investment in intellectual property products remained largely unchanged.