On January 25, the BEA released its Advance Estimate for 2024Q4 GDP. The key headline number: GDP grew at an annualized rate of 3.3% in the fourth quarter, down from 4.9% in the third quarter. The recent number, though down from the fourth quarter, was the largest since the first quarter of 2022. Moreover, surveyed economists from the Wall Street Journal forecast 2% growth.
A useful way to think about this drop in output growth is in terms of the contributions of the major components of GDP. These contributions are the growth of a component multiplied by its share of GDP. The 1.6 percentage point decline in GDP growth is chiefly due to investment (contributing 1.4 percentage points, that is, falling from 1.8 to 0.4) with lesser contributions due to government spending (0.4 points) and consumption (0.2 points). Offsetting contributions were recorded by imports (-0.3 points) and exports (-0.1 points).
The quarterly personal consumption expenditures price index (PCE) fell to 1.7%, continuing an impressive decline starting in Q3 of 2022.
The BEA reports that the PCE price index increased 0.2% in December, up from -0.1% in November. At annual rates, these work out to 2.0% (December) and -0.8% (November). Our measure of trend PCE inflation rose, at an annual rate, from 1.4% in November to 1.6% in December. The earlier CPI report foreshadowed these increases. On a year-over-year basis, PCE inflation was essentially unchanged between November and December at 2.6%.
Our measure of trend core PCE inflation was up slightly, from an annualized 1.9% (November) to 2.0% (December). On a monthly basis, core PCE inflation shot up from 0.8% to 2.1% while the year-over-year rate fell from 3.2% to 2.9%. All in all, core PCE inflation looks to be settling into the Fed’s target of 2.0%. It will simply take a few months for the year-over-year rate to catch up with recent developments.
