4Q24 GDP: Inventory Liquidation Rules

A booming PCE consumption line gets a trim with a substantial inventory haircut to GDP of over -0.9 and a hit to equipment investment.

Jan 30, 2025

Inventory: To rebuild or not to rebuild. That is the question.

After two quarters of +3% handle GDP, the 4Q24 advance estimate weighs in with a +2.3% 4Q24 GDP that includes a -0.93% deduction on private inventory (Table 2) as one of the “little things” that often moves the needle higher and lower in a low growth environment. We have seen big moves in some of these lines before (see 3Q22 GDP: It’s the Big Little Things 10-27-22).
Getting a handle on how inventory decisions ahead will be influenced by tariff threats and will play out across finished goods or supplier chains is one of those equations with a few too many unknowns to solve for X. The decisions will be more obvious in the 1Q25 and 2Q25 numbers.
The PCE line rang up a very strong +4.2% for the strongest print since 1Q23 and before that since 4Q21. The other two big pieces of the numbers included GPDI at -5.6% and Government at +2.5%.
The slowdown in fixed investment growth rates to a -5.6% contraction in Gross Private Domestic Investment (GPDI) after some solid growth periods (including +8.3% in 2Q24) is tied to a -7.8% hit to the Equipment line in 4Q24 as part of an overall -2.2% contraction in Nonresidential. That was partly offset by +5.3% in Residential after a few quarters of contraction on the Residential line.

The above chart summarizes key line item changes in the 4Q24 advance GDP estimate. We will be out later with our “Into the Weeds” follow-up on the fixed investment subsector lines in a separate commentary, but the chart above captures some material moving parts.

The most notable line given its share of GDP (68%) is PCE which posted another big number at +4.2%. We will get Personal Income and Outlays tomorrow along with PCE inflation. Today’s release posted a +2.3% PCE price index move for the quarter with Core PCE at +2.5%. The +2.3% is down from +3.3% in 2023. The +2.3% 4Q24 PCE price index is up sequentially from 3Q24 even if improved YoY (Table 4 of the release).

The PCE line included a big move of +6.6% in Goods (vs. +5.6% in 3Q24) with +12.1% in Durables, up sequentially from +7.6% in 3Q24. That +12.1% on Durables is the highest since 1Q23 (+17.1%) and +14.7% in 2Q21. Services was at +3.1%, up sequentially from +2.8% in 3Q23.

In the Fixed Investment lines, the -7.8% on Equipment comes after +10.8% in 3Q24, +9.8% in 2Q24, and +0.3% on 1Q24, so these numbers can swing around. Structures were negative at -1.1% following -5.0% in 3Q24 after an array of bullish quarters in 2022-2023 peaking in double digits in 1Q23 and 2Q23.

The shift in investment planning with the maturing of some multiyear projects will be getting a lot of attention when the tariff game plan finally gets some visibility. The same is true of the legislative agenda. The “reshoring theme” vs. the defensive capex potential makes for a wider range of outcomes such as that seen back in 2019. The FOMC easing cited weak capex and weak exports as their rationale for the fed funds cuts.

We will follow up with the line items and category fixed asset deltas later today. The cyclical crossroads for corporate investment will be facing a wide range of “pro and con” risk factors that include tariffs, tax policy, deregulation, currency trends, and business confidence among a range of factors that will flow into capital budgets for investment or capital allocation for shareholders. The AI wildcard with DeepSeek headlines could also flow into fixed investment. Right now, that topic is all over the map.

3Q24 GDP Second Estimate: PCE Trim, GPDI Bump 11-27-24

Fixed Investment in 3Q24: Into the Weeds 11-7-24

The Politics of Objective GDP Numbers: “Flex Facts” on Growth 10-30-24

3Q24 GDP Update: Bell Lap Is Here 10-30-24

2Q24 GDP: Final Estimate and Revision Deltas 9-26-24

2Q24 GDP 2nd Estimate: The Power of 3 and Cutting 8-29-24

Presidential GDP Dance Off: Clinton vs. Trump 7-27-24

Presidential GDP Dance Off: Reagan vs. Trump 7-27-24

GDP 2Q24: Banking a Strong Quarter for Election Season 7-25-24

State Unemployment: A Sum-of-the-Parts BS Detector 6-30-24

1Q24 GDP: Final Cut Moving Parts 6-27-24

Construction Spending: Stalling Sequentially at High Run Rates 6-4-24