GDP GROWTH: TRENDING IN Q4 2024
\nThe U.S. economy slowed in the fourth quarter but still turned in a healthy 2.8% growth rate for the
\nyear, compared to 2.9% in 2023. Growth in 2024\u2019s GDP reflected increases in consumer spending,
\ninvestment, government spending and exports.<\/p>\n
The fourth quarter expanded at an annualized rate of 2.3%, as measured by gross domestic product.
\nThat was off from the 3.1% GDP increase in the third quarter and slightly below the expectations of
\nmany economists who predicted a 2.4% gain. \u201cFourth-quarter GDP data capped off a surprisingly
\nstrong year in 2024. The U.S. consumer has been unstoppable, supported by wealth creation, a strong
\nlabor market and lending,\u201d said Ellen Zentner, chief economic strategist at Morgan Stanley Wealth
\nManagement.<\/p>\n
There are few concerns about economic growth this year. The key uncertainty lies in whether proposed
\ntariffs and expansionist policies by the new administration in Washington, D.C., will fan the embers of
\ninflation, burden consumers with higher prices and prevent the Federal Reserve from lowering interest
\nrates. The increase in real GDP in the fourth quarter primarily reflected increases in consumer and
\ngovernment spending that were partly offset by a decrease in investment. Spending on imports, a
\nsubtraction in the calculation of GDP, fell 0.8% from 10.7% in Q3, the biggest drop in six quarters.<\/p>\n
Consumer spending accelerated to an annual rate of 4.2% in the fourth quarter, up from the prior quarter\u2019s 3.7%. Spending both on goods and services gained steam in that period, especially purchases of durables, which registered a surprising 12.1% rate, the most since early 2023.<\/p>\n
The pick-up in spending on durable goods \u2014 products meant to last at least three years such as furniture and cars \u2014 may have been due to shoppers buying ahead of the Feb. 1 scheduled imposition of tariffs of 25% on goods from Mexico and Canada. Lower short-term interest rates also may have moved consumers to buy more durables. Nonresidential fixed investment contracted at an annual rate of 2.2% in the fourth
\nquarter, down sharply from the 4% gain in Q3.<\/p>\n
\u201cWe ended on a pretty strong note,\u201d said Diane Swonk, chief economist at KPMG. \u201cIt\u2019s stunning how resilient and strong the economy has been.\u201d Compared to the third quarter, the deceleration in real GDP in the fourth quarter primarily reflected the downturns in investment and exports.<\/p>\n
The price index for gross domestic purchases increased 2.2% in the fourth quarter, compared with an increase of 1.9% in the third quarter. The personal consumption expenditures index was up 2.3%, compared with an increase of 1.5%. Excluding food and energy prices, the PCE price index increased 2.5%, compared with a third-quarter increase of 2.2%.<\/p>\n
The price index for gross domestic purchases increased 2.3% in 2024, compared with an increase of 3.3% in 2023. The PCE price index increased 2.5%, compared with a Q3 increase of 3.8%. Excluding food and energy prices, the PCE price index increased 2.8%, compared with Q3\u2019s gain of 4.1%.<\/p>\n
EMPLOYMENT: TRENDING IN Q4 2024
\nThe U.S. economy delivered a strong finish to 2024, adding 256,000 jobs in December for the largest
\nincrease since March. November 2024\u2019s job gains were revised down by 15,000 to 212,000, while 7,000
\nadded jobs in October raised the month\u2019s revised total to 43,000.<\/p>\n
The increase was greater than the Dow Jones consensus forecast of 155,000 jobs. The unemployment rate
\nunexpectedly ticked down to 4.1% from 4.2%.<\/p>\n
Notably, wage growth does not appear to be re-accelerating. Year-over-year wage growth for the private
\nsector came in at 3.9%, roughly where it has been for three consecutive months. These and other key factors show the economy is operating at strength. There were about 2.2 million jobs added in 2024, a monthly average of 186,000 in line with annual totals from 2017 to 2019.<\/p>\n
Job growth came from the familiar sources of health care, which gained 46,000 positions, followed by
\n43,000 leisure and hospitality jobs and 33,000 added to government payrolls.<\/p>\n
Retail trade added 43,000 jobs in December, following a loss of 29,000 jobs in November. In December,
\nemployment increased in clothing, clothing accessories, shoe, and jewelry retailers (+23,000); general
\nmerchandise retailers (+13,000); and health and personal care retailers (+7,000). Building material and
\ngarden equipment and supplies dealers lost jobs (-11,000). Overall, employment in retail trade changed little in 2024, following an average monthly increase of 10,000 in 2023. At their December meeting, Federal Reserve officials deemed the labor market mostly healthy though slowing. The Fed
\nvoted at the meeting to lower its key borrowing rate by a quarter percentage point while signaling a slower pace of reductions ahead. \u201cThe bottom line is the economy is in a good place. But, as markets expected, central bankers left rates unchanged in their January Meeting. It\u2019s growing very strongly. The labor market is at full employment,\u201d said St. Louis Fed President Alberto Musalem in an interview after the jobs report. Musalem also cautioned that the pace of the interest rate reductions \u201chas to be patient and careful and very dependent on the outlook.\u201d<\/p>\n
The U.S. economy has now added jobs for 48 months in a row, tying the second-longest period of employment expansion on record since 1939. Health care added 46,000 jobs in December, with 15,000 new positions in home health care services, 14,000 nursing and residential care facilities jobs
\nand 12,000 in hospitals. Health care added an average of 57,000 jobs per month in 2024, the same as the average monthly gain in 2023. Retail trade added 43,000 jobs in December, following a loss of 29,000 jobs in November. In December, employment increased in clothing, clothing accessories, shoe, and jewelry retailers (+23,000); general merchandise retailers (+13,000); and health and personal care retailers (+7,000).<\/p>\n
Building material and garden equipment and supplies dealers lost jobs (-11,000). Overall, employment in retail trade changed little in 2024, following an average monthly increase of 10,000 in 2023. Government employment continued to trend up in December (+33,000). Government added an average of 37,000 jobs per month in 2024, below the average monthly gain of 59,000 in 2023.<\/p>\n
MONETARY POLICY: TRENDING IN Q4 2024
\nAfter cutting the federal funds target interest rate by a half point in September the Fed\u2019s Open Market
\nCommittee lowered the overnight bank rate another 50 basis points in the fourth quarter to 4.25%
\nto 4.50%. But policymakers signaled that lingering inflation and strong economy have forced a
\nrecalibration of rate-cut plans for 2025, scaling back the number of planned reductions from four to
\ntwo.<\/p>\n
\u201cRecent indicators suggest that economic activity has continued to expand at a solid pace,\u201d said Fed
\nChair Jerome Powell after the December meeting, telling the New York Times: \u201cThe U.S. economy is
\njust performing very, very well, substantially better than our global peer group.\u201d<\/p>\n
Since earlier in the year, labor market conditions have generally eased, and the unemployment rate
\nhas moved up but remains low, Powell said. Inflation has made progress but remains somewhat
\nelevated. Powell said the central bank\u2019s policy \u201cis now significantly less restrictive. We can therefore be
\nmore cautious as we consider further adjustments to our policy rate.\u201d<\/p>\n
The Fed held rates at 5.25% to 5.50% from July 2023 to September 2024. Between March 2022, when
\nrates were near zero, and July 2023 the Fed raised rates 11 times.<\/p>\n
Along with the latest interest rate cut, the Fed continues, as it has since 2022, reducing its balance sheet of fixed income assets. At its peak, the Fed\u2019s balance sheet grew to nearly $9 trillion dollars. Each month, the Fed trims its Treasury bond holdings, which now have declined to approximately $6.9 trillion.<\/p>\n
\u201cIt seems unlikely the Fed will drop its balance sheet back to the $4 trillion level, as it stood in 2015-16, but given the extent the economy has grown since then, a larger Fed balance sheet may be justified,\u201d said Rob Haworth, senior investment strategy director with U.S. Bank Asset Management.<\/p>\n
After December 2024\u2019s meeting, the FOMC issued its Summary of Economic Projections, reflecting each FOMC member\u2019s forward view on key economic variables. The Fed\u2019s projections suggest most major economic measures are expected to show little change in 2025.<\/p>\n
\u201cThe Fed is seeing a lot of what they want in terms of economic data,\u201d Haworth said. \u201cInflation in general is slowing, except for recent upticks in food and energy, which are considered transitory. The job market remains healthy as well.\u201d The Fed\u2019s aim in boosting rates and keeping them elevated was to throttle the highest rate of inflation in forty years. At its peak, inflation, as measured by the Consumer Price Index, reached 9.1% for the 12 months ending in June 2022. The most recent CPI reading, for the 12 months ending in November 2024, showed inflation at a much improved 2.7%. However, over the most recent months, inflation moved modestly higher.<\/p>\n
\u201cThere is a risk of a reacceleration of inflation,\u201d Haworth said, adding, \u201cThe potential for added tariffs under the new Trump administration could add to that risk.\u201d<\/p>\n
GLOBAL ECONOMY: TRENDING IN Q4 2024
\nGlobal economic growth closed the year holding steady at 3.2% and is projected by the International
\nMonetary Fund to gain 0.1 percentage point in 2025.<\/p>\n
The IMF\u2019s World Economic Outlook Update said the expected improvement was less than predicted after
\ndisappointing data releases in some Asian and European economies.<\/p>\n
Growth in China, at 4.7% year over year failed to meet expectations. Faster-than-expected net export
\ngrowth only partly offset a faster-than-expected slowdown in consumption amid delayed stabilization in the property market and persistently low consumer confidence, the IMF said. Growth in India also slowed more than expected, led by a sharper-than-expected deceleration in industrial activity. Growth continued to be subdued in the euro area (with Germany\u2019s performance lagging that of other euro area countries), largely reflecting continued weakness in manufacturing and goods exports even as consumption picked up in line with the recovery in real incomes. In Japan, output contracted mildly owing to temporary supply disruptions.<\/p>\n
The IMF noted that momentum in the United States remained robust with the economy expanding at a rate of 2.7% year over year in the third quarter, powered by strong consumption.<\/p>\n
Global disinflation continues, but there are signs that progress is stalling in some countries and that elevated inflation is persistent in a few cases. Global headline inflation is expected to decline to 4.2% in 2025 and 3.5% in 2026. The global median of sequential core inflation has been just slightly more than 2% recently. Nominal wage growth shows signs of moderation along with continued normalization in labor markets.<\/p>\n
Although core goods price inflation has fallen back to or below trend, services price inflation is still running above pre\u2013COVID-19 averages in many economies, most notably the United States and the euro area. Pockets of elevated inflation also persist in some emerging market and developing economies in Europe and Latin America.<\/p>\n
Policy-generated disruptions to the ongoing disinflation process could interrupt the pivot to easing monetary policy with implications for fiscal sustainability and financial stability, the IMF said. Where inflation is proving more sticky, central banks are moving more cautiously in the easing cycle while keeping a close eye on activity and labor market indicators as well as exchange rate movements. A few central banks are raising rates, marking a point of divergence in monetary policy.<\/p>\n
Global financial conditions remain largely accommodative. Equities in advanced economies have rallied on expectations of more business friendly policies in the United States. In emerging market and developing economies, equity valuations have been more subdued, and a broad-based strengthening of the US dollar, driven primarily by expectations of new tariffs and higher interest rates in the United States, has kept financial conditions tighter. In the United States, underlying demand remains robust, reflecting strong wealth effects, a less restrictive monetary policy stance and supportive financial conditions. IMF staff projections included assumptions based on a looser fiscal policy in the United States, Driven by new
\nexpansionary measures such as tax cuts, U.S. could see a boost in economic activity in the near term with small positive spillovers onto global growth.<\/p>\n","protected":false},"excerpt":{"rendered":"