U.S. Q4 GDP Slows to 2.3% as Investment Drops; Inflation Rises, Jobless Claims Decline

U.S. GDP Growth Slows to 2.3% in Q4 as Investment Declines

The U.S. economy expanded at an annualized rate of 2.3% in the fourth quarter of 2024, according to the advance estimate from the Bureau of Economic Analysis. This marks a slowdown from the 3.1% growth recorded in Q3, driven by weaker investment and exports despite steady consumer and government spending.

For the full year, real GDP increased by 2.8%, slightly below the 2.9% expansion in 2023. Inflation indicators showed mild acceleration, with the PCE price index rising 2.3% in Q4 compared to 1.5% in the previous quarter. Core PCE, which excludes food and energy, climbed 2.5%, up from 2.2%.

Investment and Exports Weigh on Growth

The primary drag on GDP in Q4 came from declining private investment and a downturn in exports. While consumer spending remained resilient, business spending weakened, signaling potential caution amid tighter financial conditions. Imports, which subtract from GDP calculations, also declined, partially offsetting the weaker trade performance.

Government expenditures helped stabilize growth, contributing positively to overall GDP. However, with investment slowing, markets will closely watch corporate earnings and credit conditions for signs of further weakening in business confidence.

Inflation Accelerates Slightly

Inflationary pressures ticked higher in Q4, with the gross domestic purchases price index rising 2.2%, up from 1.9% in Q3. The PCE price index climbed 2.3%, suggesting that inflation remains slightly above the Federal Reserve’s 2% target but is far from the highs seen in previous years.

Excluding volatile food and energy components, core PCE inflation reached 2.5%, compared to 2.2% in the prior quarter. While the data suggests inflation is moderating over the long term, the recent uptick may influence Fed policymakers as they assess the timing of potential rate cuts.

Jobless Claims Decline, Labor Market Remains Tight

Weekly jobless claims fell to 207,000 for the week ending January 25, down 16,000 from the previous week. The four-week moving average edged slightly lower to 212,500, reinforcing signs of a still-tight labor market.

Continuing unemployment claims declined by 42,000 to 1.86 million, though the four-week moving average rose slightly to 1.87 million. The insured unemployment rate remained steady at 1.2%, indicating that layoffs remain low despite economic deceleration.

Market Outlook: Cautious Sentiment as Growth Slows

With GDP growth slowing and inflation edging higher, markets may remain cautious. The weaker investment outlook could weigh on equities, while bonds may see increased demand if economic conditions soften further. The labor market’s resilience provides some stability, but traders will be closely monitoring upcoming Fed guidance and corporate earnings for further signals on economic momentum.