4Q24 GDP: The Final Cut

The final estimate of 4Q24 GDP is anticlimactic. We break out key line item deltas with PCE still dominating at +4.0%.

Mar 27, 2025

It all comes down to how much you choose to see – or not to see.

The 4Q24 numbers show a slight upward revision from +2.3% to +2.4%. We look across the recent quarter as well as the annual full year 2024 print of +2.8%. For those keeping score, that +2.8% annual number beats 3 of 4 Trump 1.0 years with only Trump’s 2018 higher (see Gut Checking Trump GDP Record 3-5-25, see Trump's “Greatest Economy in History”: Not Even Close 3-5-25).
The GDP line item exercise is worthwhile in framing what might come ahead in 2025 with waves of forecasts streaming out (Fed, OECD, etc.) including a +1.7% 2025 median forecast recently from the Fed with the OECD calling for the US posting a +2.2% GDP growth rate in 2025 and +1.6% in 2026. There will be more forecasts to come in the weeks and months ahead that attempt to factor in the waves of tariffs (and speculative retaliations). Those revisions are likely biased lower.
In a fact-free world, we emphasize that today’s release cites annual 2024 “profits from current production” rose by over 22% to $281 billion. You will not be hearing about that from Bessent or Lutnick, but we are partial to facts.
With PCE at 68% of nominal GDP dollars, Gross Private Domestic Investment (GPDI) at 18%, Government Consumption/Investment at 17% (State and Local 10.4%, Federal at 6.5%, Nondefense Federal 2.7%), and Net exports (exports – imports) at -3%, that gets you to 100% of GDP. How tariffs will impact the 68% in PCE and 18% in GPDI is likely to end up as much more important than the impact on the -3% from the trade deficit. DOGE will impact the Government line (in a bad way).
It is always important to get into the line items and take the 30,000-foot adjectives and political spin (“ripping us off” and “subsidizing” other nations, Federal government “waste and fraud”) for what they are.
As we get into the tariff implementation process and ensuing trade wars, the potential for both imports and exports to move lower is high. Both were already negative in 4Q24. As a reminder, weak exports and weak fixed investment in the US were on the short list of factors shaping why the Fed eased in 2019 after a brutally bad year for assets in 2018 (see Histories: Asset Return Journey from 2016 to 2023 1-21-24).

The above chart updates the 4Q24 GDP deltas from the advance estimate, across the second estimate, and now the final numbers for 4Q24. As people play politics with the economic themes in qualitative terms, it is always a good drill to look at the real numbers and along the line items from the consumer side of the ledger and then across the GPDI lines and finally government outlays (consumption and investment).

After booming stimulus and exceptional growth in the early Biden years, the GPDI line has leveled off and is now sliding. Equipment is also contracting and that is the line that Trump promises will go much better. We looked under the hood at the “capex lines” in an earlier commentary (see 4Q24 GDP: Into the Investment Weeds 1-30-25).

Musk wants Government lines out of the GDP accounts as if the economic activity does not exist as it relates to government consumption and the benefits of investment (including human capital). He may be a genius at businesses he is involved in, but the common-sense factor around how the US population lives is beyond his scope. From defense contractors to construction companies – to name two obvious ones – many real economy companies see government outlays as quite economically relevant.

The same is true of the suppliers to those parties and the employees on the payrolls. That he sees teachers and state and local services as economically irrelevant is absurd (with a touch of mean spiritedness). Those state and local teachers are investments in the next generation of employees and the necessary human capital they help develop (this is the automaton’s excuse for a human being running DOGE).

Musk presumably has never washed and waxed the floors of a school in a part-time job or washed dishes in a metro health care facility. Meanwhile, the garbage does not grow wings and fly to its next destination. Someone takes it out (and some Fortune 500 companies or municipal entities pick it up). In the age of infrastructure focus, the idea that 17% of GDP should not be in the numbers is just odd. If GDP growth slows, get ready for the complaint about methodologies. The Project 2025 playbook wanted to control the information and insert like-minded people. That rolls up under the Census and Commerce.

Consumers rule, but GPDI and Government face headwinds

The reality of the GDP numbers is that the PCE line drives the economic growth at 68% of GDP, and how the consumer feels heading into 2025 has been a dominant part of the macro discussions including numerous retailers, airlines, and homebuilders of late on earnings calls and in earnings revision commentary.

The consumer sector dominates GDP and how those serving that sector consume and invest. For government, the State and Local numbers dominate. Even if the nondefense Federal mix of 2.7% of GDP gets the DOGE engines running, it’s a small part of the mix. What the wunderkind crowd will do for the defense line remains to be seen as the Pentagon purge continues. Fighting with the military did not work out so well for Joe McCarthy in the early 1950s.

We saw the abysmal UMich sentiment numbers and then again this week the even worse Conference Board numbers at a 12-year low and inflation expectations numbers that were almost impossible. The UMich report earlier was no bargain either with sharply higher inflation expectations. The sales pitch on “tariffs don’t cause inflation” is not catching on, and the more nuanced sleight of hand on “transitory” and the idea that a “one-time increase is not inflation” being spun by the semantic savants of the economics circuit is not selling well to households.

The tariff either leads to a “reduction in purchasing power” or not (25% tariff meets 4% wage growth). That basic transactional reality of higher costs at the borders lacks “focus group” value, so they tend not to tackle it in their talking points (after all, Trump still says the “seller pays”). Someone loses along the chain in the world of “debits and credits.” Figuring out who gets hurt more is the exercise.

The process from here is watching for the timing and adjustments across the transaction chain from negotiating with suppliers to taking out other costs (layoffs). The focus will be on what can be flowed into price and how currencies and the supply-demand dynamics of any given product group impact pricing power.

The above chart updates the running GDP growth rates by quarter and major line items (ex-government). There is more to life than GDP accounts, but we see GDP, Inflation, and Payroll trends as our top 3. The trade deficit fixation ignores how low-cost global sourcing has been a key driver of low inflation and monstrously strong equity returns. Admitting that would be a good start. It has been a bipartisan challenge since the “other guy” is always the bad guy or the idiot. The only objective statement that has easy support on whether someone is a “bad guy” is if he denies the numbers and ignores facts (you can decide who those are).

How you can get the US back to a consistent 3% GDP growth economy gets into the fiscal debt and sovereign borrowing risks as a problem that gets worse every 4 years (see US Debt % GDP: Raiders of the Lost Treasury 5-29-23).

Besides the revenue and expense line, a big “values question” is how you can change growth prospects without also addressing human capital and education. That is an economic debate and not just another theme day with AOC and Bernie. The DOE is getting scuttled. The cost of underinvestment thus becomes more ideological than economic. The DOGE folks simply don’t give a damn, and a growing mix of the consumer sector is starting to feel that as expressed in their reactions.

The slow economic growth since 2000 across Bush, Obama, Trump, Biden and now Trump again happened for a reason (fiscal, geopolitical, etc.). Obama had the worst numbers of the lot in Obama 1.0. His performance in Obama 2.0 was better. Bush was bookended by crises. Trump 1.0 was a 2% economy overall (excluding COVID) even as his minions keep saying it was a “3% economy” as if repetition is the soul of the factual (see The Politics of Objective GDP Numbers: “Flex Facts” on Growth 10-30-24). A sub-2.0% GDP number can be wagged simply by inventory deltas into a material increase or decrease relative to a 2.0% baseline. We prefer looking at the private sector pieces of PCE and GPDI for real answers. It is hard to find a lot of good news ahead in 2025 in those lines right now.

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