Real GDP (Q4-2024, second estimate)

U.S. economic growth remains solid in the fourth quarter

• The second estimate of fourth quarter real GDP growth was unchanged at 2.3% quarter-over-quarter (annualized) – in line with the consensus forecast. This marked a slight deceleration from the 3% pace in the prior two quarters.  
• Consumer spending remained strong and unchanged at 4.2%, but goods spending was revised down to 6.1% (from 6.6%), while services spending was revised up to 3.3% (from 3.1%). Non-residential investment fell 3.2% ( revised down from 2.2%), but residential investment remained a bright spot as it grew by 5.4% (up from 5.3%). The drag from private inventories was pared back slightly, with this category subtracting 0.8 percentage points (pp) to overall GDP (from -0.9 pp previously). 
• Government spending expanded by a healthy 2.9% (up from 2.5%), with federal spending up 4% and state & local spending up 2.2%. 
• Net exports contributed a minor 0.1 percentage points to Q4 GDP growth (up modestly from the flat reading in the prior estimate). This as the decline in exports was pared back slightly to -0.5% (from -0.8%), while imports fell more than in the initial estimate (-1.2% from -0.8%).

Key Implications

• The second reading of fourth quarter U.S. GDP carried through only modest revisions, leaving intact the theme of solid economic activity at the end of last year. The consumer continued to power growth, while government spending and residential investment also lent a hand. But elsewhere, there were some signs of softness, with pullbacks in non-residential investment and inventories impeding an even better showing in overall growth.
• Focusing on 2025, while there's plenty of uncertainty with things like tariffs and other policy measures hanging in the balance, we anticipate the U.S. economy will have another solid year, with growth to ease only moderately to 2.4% (from 2.8% in 2024). The consumer remains central to this theme and should continue to provide plenty of support ahead (see our Quarterly Q&A publication). That said, spending in 2025 appears to have got off to a slow start, after a strong December. A weak January retail sales report already alludes to this, but tomorrow's "personal income and spending" report will confirm if this was indeed the case.  

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