Economic Release
US: GDP
Date: March 27, 2025 07:30 AM CT
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Highlights
The third estimate of fourth quarter GDP shows growth up 2.4 percent compared to the prior quarter. The increase matches the consensus of up 2.4 percent in the Econoday survey of forecasters. The third estimate is a negligible upward revision from up 2.3 percent in the second estimate with revisions in the components mostly small and offsetting.
Personal consumption expenditures continue to be the largest contributor to growth in the fourth quarter (2.70) although it is revised down slightly to u p 4.0 percent. Spending on durable goods is revised a bit higher to up 12.4 percent. Nondurables is revised up a tenth to up 3.1 percent while services are revised down three-tenths to up 3.0 percent. Government spending is revised up two-tenths to up 3.1 percent in the fourth quarter for positive contribution (0.52).
Gross investment is little revised at down 5.6 percent in the fourth quarter and makes a negative contribution (-1.03). While nonresidential fixed investment is down 3.0 percent in the fourth quarter, residential investment is up 5.5 percent. Spending on commercial real estate remains weak while consumers continue to buy homes, especially on dips in mortgage rates.
Net exports made a positive contribution (0.26) to GDP in the fourth quarter with a narrower deficit of $920.1 billion compared to a deficit of $943.7 billion in the prior quarter. The change in private inventories is a negative contribution (-0.84) with inventories down to $13.6 billion in the fourth quarter after $76.0 billion in third quarter.
With the fourth quarter well in the rear view and the first quarter 2025 nearly over, the moderate growth at the end of 2024 is less of interest than what is happening now. GDP Nowcasts from three Fed district banks are not telling a cohesive story. The latest forecast from the Atlanta Fed's GDPNow forecast the most reliable of the early estimates is for a decline of 1.8 percent in the first quarter. However, that seems to be greatly influenced by the big widening in the international trade deficit in January. The St. Louis Fed's GDP Nowcast if for growth of 2.25 percent in the first quarter. The New York Fed's Staff Nowcast is for a solid 2.72 percent in the first quarter. The bottom line is that these forecasts are heavily reliant on an incomplete set of data which encompasses January and only some February reports.
Personal consumption expenditures continue to be the largest contributor to growth in the fourth quarter (2.70) although it is revised down slightly to u p 4.0 percent. Spending on durable goods is revised a bit higher to up 12.4 percent. Nondurables is revised up a tenth to up 3.1 percent while services are revised down three-tenths to up 3.0 percent. Government spending is revised up two-tenths to up 3.1 percent in the fourth quarter for positive contribution (0.52).
Gross investment is little revised at down 5.6 percent in the fourth quarter and makes a negative contribution (-1.03). While nonresidential fixed investment is down 3.0 percent in the fourth quarter, residential investment is up 5.5 percent. Spending on commercial real estate remains weak while consumers continue to buy homes, especially on dips in mortgage rates.
Net exports made a positive contribution (0.26) to GDP in the fourth quarter with a narrower deficit of $920.1 billion compared to a deficit of $943.7 billion in the prior quarter. The change in private inventories is a negative contribution (-0.84) with inventories down to $13.6 billion in the fourth quarter after $76.0 billion in third quarter.
With the fourth quarter well in the rear view and the first quarter 2025 nearly over, the moderate growth at the end of 2024 is less of interest than what is happening now. GDP Nowcasts from three Fed district banks are not telling a cohesive story. The latest forecast from the Atlanta Fed's GDPNow forecast the most reliable of the early estimates is for a decline of 1.8 percent in the first quarter. However, that seems to be greatly influenced by the big widening in the international trade deficit in January. The St. Louis Fed's GDP Nowcast if for growth of 2.25 percent in the first quarter. The New York Fed's Staff Nowcast is for a solid 2.72 percent in the first quarter. The bottom line is that these forecasts are heavily reliant on an incomplete set of data which encompasses January and only some February reports.
Market Consensus Before Announcement
A slight upward revision to 2.4 percent from 2.3 percent is the call for GDP.
Definition
Gross Domestic Product represents the total value of the country's production during the period and consists of the purchases of domestically-produced goods and services by individuals, businesses, foreigners and government entities. Data are available in nominal and real (inflation-adjusted) dollars, as well as in index form. Economists and market players always monitor the real growth rates generated by the GDP quantity index or the real dollar value. The quantity index measures inflation-adjusted activity, but we are more accustomed to looking at dollar values.
Household purchases are counted in personal consumption expenditures -- durable goods (such as furniture and cars), nondurable goods (such as clothing and food) and services (such as banking, education and transportation). Private housing purchases are classified as residential investment. Businesses invest in nonresidential structures, durable equipment and computer software. Inventories at all stages of production are counted as investment. Only inventory changes, not levels, are added to GDP.
Net exports equal the sum of exports less imports. Exports are the purchases by foreigners of goods and services produced in the United States. Imports represent domestic purchases of foreign-produced goods and services and must be deducted from the calculation of GDP. Government purchases of goods and services are the compensation of government employees and purchases from businesses and abroad. Data show the portion attributed to consumption and investment. Government outlays for transfer payments or interest payments are not included in GDP.
The GDP price index is a comprehensive indicator of inflation. It is typically lower than the consumer price index because investment goods (which are in the GDP price index but not the CPI) tend to have lower rates of inflation than consumer goods and services. Note that contributions of each component, as averaged over the prior year, are tracked in the table below (components do not exactly sum to total due to chain-weighted methodology). Consumption expenditures, otherwise known as consumer spending, has over history been steadily making up an increasing share of GDP.
Household purchases are counted in personal consumption expenditures -- durable goods (such as furniture and cars), nondurable goods (such as clothing and food) and services (such as banking, education and transportation). Private housing purchases are classified as residential investment. Businesses invest in nonresidential structures, durable equipment and computer software. Inventories at all stages of production are counted as investment. Only inventory changes, not levels, are added to GDP.
Net exports equal the sum of exports less imports. Exports are the purchases by foreigners of goods and services produced in the United States. Imports represent domestic purchases of foreign-produced goods and services and must be deducted from the calculation of GDP. Government purchases of goods and services are the compensation of government employees and purchases from businesses and abroad. Data show the portion attributed to consumption and investment. Government outlays for transfer payments or interest payments are not included in GDP.
The GDP price index is a comprehensive indicator of inflation. It is typically lower than the consumer price index because investment goods (which are in the GDP price index but not the CPI) tend to have lower rates of inflation than consumer goods and services. Note that contributions of each component, as averaged over the prior year, are tracked in the table below (components do not exactly sum to total due to chain-weighted methodology). Consumption expenditures, otherwise known as consumer spending, has over history been steadily making up an increasing share of GDP.
Description
GDP is the all-inclusive measure of economic activity. Investors need to closely track the economy because it usually dictates how investments will perform. Investors in the stock market like to see healthy economic growth because robust business activity translates to higher corporate profits. Bond investors are more highly sensitive to inflation and robust economic activity could potentially pave the road to inflation. By tracking economic data such as GDP, investors will know what the economic backdrop is for these markets and their portfolios.
The GDP report contains a treasure-trove of information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. GDP components such as consumer spending, business and residential investment, and price (inflation) indexes illuminate the economy's undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.
Importance
Gross domestic product is the country's most comprehensive economic scorecard.
Interpretation
When gross domestic product expands more (less) rapidly that its potential, bond prices fall (rise). Healthy GDP growth usually translates into strong corporate earnings, which bode well for the stock market.
The four major categories of GDP -- personal consumption expenditures, investment, net exports and government -- all reveal important information about the economy and should be monitored separately. One can thus determine the strengths and weaknesses of the economy in order to assess alternatives and make appropriate financial investment decisions.
Economists and financial market participants monitor final sales -- GDP less the change in business inventories. When final sales are growing faster than inventories, this points to increases in production in months ahead. Conversely, when final sales are growing more slowly than inventories, they signal a slowdown in production.
It is useful to distinguish between private demand versus growth in government expenditures. Market players discount growth in the government sector because it depends on fiscal policy rather than economic conditions.
Market participants view increased expenditures on investment favorably because they expand the productive capacity of the country. This means that we can produce more without inciting inflationary pressures.
Net exports are a drag on total GDP because the United States regularly imports more than it exports, that is, net exports are in deficit. When the net export deficit becomes less negative, it adds to growth because a smaller amount is subtracted from GDP. When the deficit widens, it subtracts even more from GDP.
Gross domestic product is subject to some quarterly volatility, so it is appropriate to follow year-over-year percent changes, to smooth out this variation.
The GDP report contains a treasure-trove of information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. GDP components such as consumer spending, business and residential investment, and price (inflation) indexes illuminate the economy's undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.
Importance
Gross domestic product is the country's most comprehensive economic scorecard.
Interpretation
When gross domestic product expands more (less) rapidly that its potential, bond prices fall (rise). Healthy GDP growth usually translates into strong corporate earnings, which bode well for the stock market.
The four major categories of GDP -- personal consumption expenditures, investment, net exports and government -- all reveal important information about the economy and should be monitored separately. One can thus determine the strengths and weaknesses of the economy in order to assess alternatives and make appropriate financial investment decisions.
Economists and financial market participants monitor final sales -- GDP less the change in business inventories. When final sales are growing faster than inventories, this points to increases in production in months ahead. Conversely, when final sales are growing more slowly than inventories, they signal a slowdown in production.
It is useful to distinguish between private demand versus growth in government expenditures. Market players discount growth in the government sector because it depends on fiscal policy rather than economic conditions.
Market participants view increased expenditures on investment favorably because they expand the productive capacity of the country. This means that we can produce more without inciting inflationary pressures.
Net exports are a drag on total GDP because the United States regularly imports more than it exports, that is, net exports are in deficit. When the net export deficit becomes less negative, it adds to growth because a smaller amount is subtracted from GDP. When the deficit widens, it subtracts even more from GDP.
Gross domestic product is subject to some quarterly volatility, so it is appropriate to follow year-over-year percent changes, to smooth out this variation.
