GDP Revised to 2.4%, Initial Claims Decline—Cooling Inflation Supports Growth Outlook

U.S. GDP Revised Higher to 2.4% in Q4; Labor Market Remains Stable

U.S. economic growth was modestly stronger than previously reported in the final quarter of 2024, with the Bureau of Economic Analysis (BEA) revising real GDP upward to an annualized 2.4%. The update came alongside a steady labor market, with jobless claims indicating no material signs of deterioration.

Consumer and Government Spending Drive Q4 Expansion

The 2.4% GDP growth, revised up 0.1 percentage point from the second estimate, reflects stronger consumer and government spending, partially offset by a pullback in investment. Imports, which subtract from GDP, declined and contributed positively to the revision. The deceleration from Q3’s 3.1% pace stemmed largely from weaker investment and export activity.

From an industry perspective, private services-producing sectors grew 2.4%, while goods-producing industries rose 2.3%. Government output increased 2.7%, underscoring fiscal spending’s ongoing role in supporting growth. Real gross output expanded 1.7% overall, led by a 3.1% increase in government production.

Inflation Trends Hold Steady

The price index for gross domestic purchases rose 2.2% in Q4, revised slightly lower, while the core personal consumption expenditures (PCE) index increased 2.6%, down 0.1 point. These revisions suggest inflationary pressures are receding modestly, reinforcing the Federal Reserve’s cautious stance. The average of real GDP and GDI—a broader measure of economic activity—stood at 3.5%, highlighting stronger income-side growth of 4.5% in Q4.

Corporate Profits See Robust Rebound

Corporate profits jumped by $204.7 billion in Q4 after a $15.0 billion decline in Q3. For the full year, profits rose $281.3 billion, reflecting improved margins and operational efficiency across sectors. The 2024 GDP expanded 2.8% annually, underpinned by gains in consumer spending, investment, government expenditures, and exports. Services and goods-producing sectors posted solid growth of 2.8% and 3.4%, respectively.

Jobless Claims Signal Resilient Labor Market

Initial jobless claims for the week ending March 22 edged down to 224,000, with the four-week average also dropping to 224,000. Continuing claims declined by 25,000 to 1.856 million, while the insured unemployment rate remained at 1.2%. The data indicates a steady labor market, despite isolated layoffs in sectors like transportation and manufacturing. States like Michigan and Texas saw localized increases, while California and Illinois posted notable decreases.

Market Forecast: Cautious Bullish Bias

The upward GDP revision, solid income and profit data, and easing inflation indicators support a cautiously bullish short-term outlook. The steady labor market and subdued inflation reduce immediate downside risks, although investment softness and global headwinds may limit upside. Equities and risk assets may find support near-term, while rates markets could see pricing adjust toward a potential Fed pause.