Real GDP (Q4-2023, second estimate)

Leslie Preston, Managing Director | 416-983-7053

Date Published: February 28, 2024

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Economic resilience remains on full display in Q4 GDP data, despite slight downward revision

  • The second estimate of fourth quarter real GDP was revised down a hair to 3.2% annualized (3.3% prev.), only slightly below consensus expectations for no revision.
  • Under the hood, downward revisions to inventory investment and federal government spending were partly offset by upward revisions to state and local spending, consumer spending, and housing investment. 
  • Overall government spending saw a decent upgrade to a 4.2% annualized pace (3.3% prev.), thanks to 5.4% growth in state and local government outlays. These outlays have been boosted by generous federal transfers through the pandemic and in infrastructure spending initiatives passed since (for more details see report). Inventory investment flipped from adding a tenth to growth to subtracting 0.3 percentage points in Q4
  • Consumer spending was upgraded to a 3% pace in the fourth quarter (2.8% prev.) on higher outlays for services. Business invest saw an upward revision to 2.4% (1.9% prev.), thanks to big upgrade to structures investment to 7.5% (3.2% prev.) and a smaller upgrade to intellectual property products +3.3% (+2.1% prev.). However, equipment investment was revised to a contraction (-1.7% vs. +1.0% prev.). 
  • We have to wait until the end of March for Gross Domestic Income and Corporate Profit data, which are delayed one month in the fourth quarter's data. A sizeable gap had opened up between GDP and GDP in the third quarter, with GDP putting economic activity about 2.4% higher than GDI.

Key Implications

  • If possible, there was mostly good news in the downward revision to GDP growth in the fourth quarter. Final domestic demand was revised up to 3.1% (2.7% prev.). This strength in domestic demand provides a solid base for momentum heading into 2024 (see report). We won't have to wait long to find out how consumers started the year, with personal income and spending for January due tomorrow.  
  • With the economy holding up remarkably well and the labor market still tight by historical standards, policymakers can afford to proceed carefully over the coming months. Economic growth is still running well above its long-run potential, implying the near-term risks to the inflation outlook are skewed to the upside. From the Fed's standpoint, this means any imminent rate cuts are off the table, and policymakers are likely to remain on hold until at least this summer.