The U.S. economy grew slower than expected in the fourth quarter, according to new data released on Thursday.
The Commerce Department’s Bureau of Economic Analysis released its advance estimate for fourth quarter gross domestic product (GDP), which found the U.S. economy grew at an annual rate of 2.3% in the fourth quarter, which runs from October through December.
Economists surveyed by LSEG had expected the economy to grow at a 2.6% rate in the quarter. The fourth quarter’s 2.3% growth was slower than the 3.1% GDP growth recorded in the third quarter.
GDP growth was driven primarily by growth in consumer and government spending but was partly offset by a decrease in investment.
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Consumer spending grew 4.2% in the fourth quarter, with increases in both services and goods. It was up from 3.7% in the third quarter and 2.8% in the second quarter. Government spending was up 2.5% in the fourth quarter – which was slower than the 5.1% increase in the third quarter.
Business investment declined 5.6% in the fourth quarter compared with the third quarter, which was relatively flat at 0.8%. Investment in equipment declined by 7.8% while investment in structures dipped by 2.2% – which was partly offset by a 5.3% rise in residential investment and a 2.6% uptick in intellectual property products.
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Disposable personal income increased by 2.8% – an acceleration from 1% and 1.1% in the second and third quarters, respectively.
Personal savings were $896 billion in the fourth quarter – down from $936 billion in the prior quarter. Personal saving as a percentage of disposable personal income was 4.1% in the fourth quarter.
The BEA’s report also included an estimate for real GDP for 2024, which came in as an increase of 2.8% – down slightly from the 2.9% rise recorded in 2023.
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“Fourth-quarter GDP capped off a surprisingly strong year in 2024,” said Ellen Zentner, chief economic strategist for Morgan Stanley Wealth management. “The U.S. consumer has been unstoppable, supported by wealth creation, a strong labor market, and lending. Still, inflation is a bit too high for the Fed’s liking and the bar to a March rate cut is rising.”
The Federal Reserve met Wednesday and held interest rates steady after three consecutive rate cuts in September, November and December amid uncertainty about inflation.
The central bank’s next meeting is set for March and the market views the likelihood of a continued pause as rising.
According to the CME FedWatch tool, the probability of rates remaining at the current target range of 4.25% to 4.5% rose from 77.2% on Wednesday to 82% as of Thursday morning.
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