US Q4 Growth Rate 2.3%... Consumption Drives Steady Recovery

Down from 3.1% in Q3, Falling Short of Market Expectations
Solid Recovery Continues with 4.2% Increase in Consumer Spending

The United States achieved a growth rate in the low 2% range in the fourth quarter of last year, falling short of expectations. Although the strong growth rate of the U.S. economy has slowed, it is still considered to be maintaining a solid recovery driven by robust consumer spending.

According to the U.S. Bureau of Economic Analysis (BEA) on the 30th (local time), the preliminary real Gross Domestic Product (GDP) for the fourth quarter of last year grew at an annualized rate of 2.3% compared to the previous quarter.

This is below the 3.1% growth rate of the third quarter of last year and the expert forecast of 2.7%. However, it still exceeded the U.S. potential growth rate, estimated to be in the high 1% range, indicating a solid growth trend.

The annual growth rate for last year was 2.8%, down 0.1 percentage points from 2.9% in 2023.

Consumption, which accounts for two-thirds of the U.S. economy, was the driving force behind the solid growth. Personal consumption expenditures increased by 4.2% in the fourth quarter compared to the previous quarter. Government spending rose by 3.2%. On the other hand, exports and imports each decreased by 0.8%. Private domestic investment also declined by 5.6%.

Inflation rose. The core Personal Consumption Expenditures (PCE) price index, which the Fed places the most importance on, increased by 2.5%, a larger rise compared to 2.2% in the third quarter of last year. This matched market expectations of 2.5%. The core PCE price index excludes food and energy to capture the underlying trend in prices.

Scott Anderson, Chief U.S. Economist at BMO Capital Markets, diagnosed, "This GDP report overall showed that the U.S. economic expansion is still based on a fairly solid foundation."

Josh Jamner, Investment Strategy Analyst at ClearBridge Investments, also analyzed, "Overall, the economy is well-positioned as it heads into 2025."

With the U.S. economy maintaining a solid recovery and the decline in inflation slowing, the Federal Reserve (Fed) is expected to continue its cautious monetary easing stance as announced.

The Fed temporarily paused its monetary easing cycle the day before. After starting the first rate cut in September last year, it lowered the rate three consecutive times by a total of 1 percentage point from a peak of 5.25-5.5% annually, then took the first pause. Fed Chair Jerome Powell said at a press conference the day before that the current rate is "considerably less restrictive" and that "policy and the economy are in really good shape, so there is no need to rush adjustments to monetary policy."

Investors also lowered their expectations for rate cuts. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market on that day reflected an 82% chance that the Fed will keep rates unchanged at the March Federal Open Market Committee (FOMC) meeting, up from 73.2% a week ago. The probability of a rate hold in May is 57.3%.