The US economy grew 2.3% saar (q/q, seasonally adjusted annualized) in Q4, slightly below expectations. What was surprising was not the top line number, but the details. Consumer spending was exceedingly strong, equipment investment surprisingly soft, and inventory accumulation unusually weak. As such, we would not view Q4 performance in either of these areas as indicative of underlying trends.
Consumer spending grew 4.2% saar, the best showing since the start of 2023. The data paint a picture of steady acceleration over the course of the year, a progression that seems somewhat difficult to reconcile with more subdued growth in real disposable income. Admittedly, there exists the possibility that current data underestimate income strength (this happened in 2023 also), but that is mere speculation at this point. To be sure, monthly data on motor vehicle sales have shown a clear increase in Q4, and this played a big role in lifting goods spending at a torrid 6.6% saar pace in Q4. Still, having approached 17.0 million (annualized) in December, the scope for further material gains here seems limited. Services consumption grew at a solid but much more sustainable pace of 3.2% saar.
Private fixed investment shrank 0.6% saar, the first contraction in two years, and this was despite higher residential investment. The culprit was a large 7.8% saar plunge in private equipment investment which, while following two very strong quarters, is nonetheless difficult to pin entirely on labor disputes that have plagues activity in the aerospace sector. Also of note, intellectual property investment growth appears to be slowing, so the combination warrants close monitoring. There was almost no inventory accumulation during the quarter, which is very unusual; this alone subtracted over 90 bp from GDP growth. Part of that was offset by declining imports such that the trade deficit was not quite as bad as feared.
All in all, a lot of peculiar dynamics that look likely to reverse in coming quarter. The big picture remains one of a resilient economy growing at above-trend pace with easing inflationary pressures. In 2024 the economy grew 2.8%, little changed from 2.9% in 2023. The GDP deflator moderated from 3.6% in 2023 to 2.4% in 2024.
