There’s no longer any doubt with the initial estimate of fourth quarter GDP growth just in. The US economy has made a soft landing. The economy grew 3.3 percent in Q4 after a 4.9 percent increase in Q3, and 2.5 percent for the full year.
This is while inflation, as measured by the most comprehensive inflation indicator for Personal Consumption Expenditures (PCE), has been rising at just 2 percent for the past two months!
Consumer spending was the main engine of growth, which “reflected increases in services (led by health care) and goods (led by recreational goods and vehicles),” said the BEA.
This is while “The price index for gross domestic purchases (GDP) increased 1.9 percent in the fourth quarter, compared with an increase of 2.9 percent in the third quarter. The personal consumption expenditures (PCE) price index increased 1.7 percent, compared with an increase of 2.6 percent. Excluding food and energy prices, the PCE price index increased 2.0 percent, the same change as the third quarter.”
Why has inflation fallen so dramatically? There are a number of reasons, beginning with the fact that the supply chain of goods and services has caught up to the demand by consumers and companies for goods and services. But also, labor productivity, the amount of goods produced per worker-hour, has risen sharply in the last 12 months, largely because of new technologies such as AI, which has stream-lined supply chains, shortening delivery times.
Real GDP also reflected increased spending in exports, state and local government spending, nonresidential fixed investment, federal government spending, private inventory investment, and residential fixed investment. Spending and investing has increased across the board.
Why wouldn’t consumers keep buying? Americans are fully employed, and average hourly wages are rising faster than inflation (+4.1%). Inflation has been falling particularly sharply over the past 6 months (1.9%-2.5%, depending on which inflation measure we look at), I said last week.
And health care spending is soaring, as a record 21.3 million people have officially signed up for healthcare insurance through the HealthCare.gov Marketplace for 2024, marking a third consecutive banner year for the program, per the press release.
HHS Secretary Xavier Becerra said, “Once again, a record-breaking number of Americans have signed up for affordable health care coverage through the Affordable Care Act’s Marketplace, and now they and their families have the peace of mind that comes with coverage.”
So I would add another reason for the improving mood of consumers: a healthier workforce is a more productive workforce.
Oh yes, and U.S. new-home sales rose 8% to an annual rate of 664,000 in December from a revised 615,000 in the prior month, the Commerce Department reported Thursday; even with very high interest rates.
The median sales price of a new home sold in December fell to $413,200 from $426,000 in the prior month partly because for sales inventories have risen to an 8-month supply.
These are all signs of recovery that will accelerate when the Fed governors finally decide inflation is no longer a danger and begin to lower their interest rates.
Harlan Green © 2024
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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