Real gross domestic product (GDP) increased at an annual rate of 2.3 percent in the fourth quarter of 2024 (October, November, and December), according to the advance estimate released by the U.S. Bureau of Economic Analysis. In the third quarter, real GDP increased 3.1 percent.
Economic growth is still looking good in the fourth quarter of 2024, with real (inflation adjusted) GDP increasing at 2.3 percent. It was mostly due to consumer spending over the holidays that rose 4.2 percent, largely because December retail sales soared, I reported earlier.
Consumers are not quitting their shopping habits, in other words, and it contributes some 70 percent to the GDP, while corporate profits are growing at a multi-decade high, which is why workers are still fully employed.
So, economists are now looking at the New Year predictions for economic growth. The Atlanta Federal Reserve’s GDPNow prediction for Q1 2025 has been going all over the place.
It now says real GDP growth is 2.9 percent on February 5, down from 3.9 percent on February 3. “…after recent releases from the Institute for Supply Management, the US Bureau of Economic Analysis, and the US Census Bureau, of lower “first-quarter real personal consumption expenditures growth and real gross private domestic investment growth.”
But inflation is still coming down, a good thing, since the tariffs to come will push prices higher on the taxed imports. It is especially true with the important Personal Consumption Expenditure Index the Fed likes to use to measure inflation.
“The price index for gross domestic purchases increased 2.3 percent in 2024, compared with an increase of 3.3 percent in 2023. The PCE price index increased 2.5 percent, compared with an increase of 3.8 percent. Excluding food and energy prices, the PCE price index increased 2.8 percent, compared with an increase of 4.1 percent.
Why so much fluctuation? It’s because of the presidential election, of course. There is tremendous confusion over what the Trump administration wants for economic growth. Reducing the budget deficit means finding budget cuts, which could slow down more business investment. Especially when Trump wants it to be in more fossil fuel production when we already have a surplus of oil and natural gas.
So in spite of concerns over their jobs that is showing up in consumer sentiment surveys, consumers keep spending according to the University of Michigan survey.
“Consumer sentiment confirmed its early-month reading, rising for the fifth consecutive month and reaching its highest value since April 2024. Buying conditions exhibited a particularly strong 32% improvement, primarily due to a surge in consumers expecting future price increases for large purchases. The expectations index continued the post-election re-calibration that began last month, climbing for Republicans and declining for Democrats in December,” said Survey Director Joanne Hsu.
And what will Friday’s unemployment report look like. MarketWatch’s Jeffry Bartash reports that weekly initial jobless claims are back to normal, with the effect of the LA fires diminished. New jobless claims, a proxy for layoffs, increased by 11,000 to 219,000 in the seven days that ended Feb. 1, the government said, which is in the normal range.
We could still have a very good 2025 year, in other words. Both the service and manufacturing sectors are growing, with manufacturing expanding after a years-long slump.
The Manufacturing PMI® rose to 50.9 percent in January, 1.7 percentage points higher compared to the seasonally adjusted 49.2 percent recorded in December. It was the 57th month of expansion after one month of contraction in April 2020, per Timothy Fiore, Chair of the survey committee.
And lastly, private payrolls company ADP said U.S. businesses created a solid 183,000 new jobs in January, and wages rose 4.8 percent, which showed the labor market was still growing.
This is why financial market indexes are at record levels, despite the looming uncertainties. It looks like some irrational exuberance is motivating investors who rely more on rumors than research, though corporate profits as a percentage of GDP are rising 11 percent these days, according to one analyst, Deutsche Bank strategist Jim Reid, and as cited by MarketWatch’s William Watts.
So irrational exuberance will be the norm this year, which in general means either follow the herd, or hunker down and wait out the chaos.
Harlan Green © 2025
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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