The U.S. economy is chugging along
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Illustration: Aïda Amer/Axios
Thursday's GDP report, at first glance, points to a year-end slowdown in growth. But that's a mirage. Under the hood, there isn't much cooling underway at all.
Why it matters: America's economy continued to chug along in the final months of 2024, with few signs of wavering demand.
- The economy is not overheating but is holding in a steady state — an outcome welcomed by economic policymakers still battling inflation with huge uncertainties ahead.
- The GDP report's details "tell a more robust story that will keep the Fed wary about easing monetary policy too far too fast," James Knightley, chief international economist at ING, wrote Thursday morning in a note.
By the numbers: The economy expanded at a 2.3% annualized rate in the October to December period, backing off from the 3.1% pace in the third quarter.
- Economic growth last quarter was powered by stronger consumer spending, which added almost 3 percentage points to the headline figure as unemployment remains low and wages grow in real terms.
- Spending on goods was particularly strong, growing 6.6% from the previous quarter, the quickest quarterly pace since the pandemic recovery in 2021. Service sector spending rose 3.1%, compared to 2.8% in the third quarter.
- The housing sector showed signs of life after being crushed by higher interest rates: Homebuilding was a slight GDP boost after two straight quarters of pulling down growth.
- Businesses slowed spending on buildings, equipment and more, with activity dropping 2.2% last quarter after strong investment for most of 2024. The category is being closely watched for signs of AI-related spending.
The intrigue: A measure of economic activity that captures underlying growth dynamics — as opposed to one-off forces — shows the economy is keeping pace.
- Final sales to private domestic purchasers increased at a 3.2% annualized rate, just 0.2 percentage points below that in the third quarter.
Between the lines: Inventory destocking was a key factor holding back headline GDP growth.
- That is among the most volatile components of GDP, and appeared to reflect a surge in demand.
What they're saying: "The auto industry wasn't keeping up with demand on dealer lots, causing lower inventories at both retail and wholesale levels," Comerica chief economist Bill Adams said in a note, pointing to demand for EVs and replacement vehicles for those destroyed by hurricanes.
The bottom line: Fed chair Jerome Powell said Wednesday that central bank officials agreed they could be patient in assessing its next move, in part because the economy is in a "good place."
- Thursday's data suggests that judgment was correct.
