Q4 GDP: A Strong Finish to 2024 and What It Means for Investors

As 2024 came to a close, the U.S. economy kept humming along with a 2.3% annualized growth rate in Q4—bringing the full year’s GDP growth to a steady 2.8%.[i] Not too shabby, considering all the recession fears that lingered from 2022. Instead, the economy defied the skeptics, fueling the ongoing bull market. But as we step into Q1 2025, what can investors take away from last quarter’s numbers? Let’s dig in.

The Consumer Keeps Spending

One of the biggest takeaways from Q4’s GDP report? Consumers are still flexing their spending power. Personal consumption expenditures (PCE) grew at a 4.2% annualized rate, the strongest in two years.[ii] Notably, durable goods—big-ticket items like cars and recreational gear—surged by 13.9% and 16.2%, respectively. After a post-pandemic lull, the “stuff” economy is making a comeback.

While services spending still carries the economy (making up two-thirds of PCE), it’s also picking up steam, growing 3.1% in Q4 compared to 2.8% in Q3—led by increased healthcare spending.[iii] This shift suggests that, even with inflation concerns and higher interest rates, people remain willing to spend on both goods and services.

Inventory Declines Could Signal a Manufacturing Pickup

Interestingly, while consumers are buying more goods, domestic manufacturing remains stuck in neutral. Businesses, rather than ramping up production, ran down inventories, which actually subtracted nearly a full percentage point from GDP growth. With inventories looking lean, manufacturers may soon have to step up production—something worth watching closely.

Adding to the case for a potential manufacturing rebound: The Institute for Supply Management’s (ISM) inventory index has indicated contraction in 21 of the last 24 months.[iv] If demand holds up, industrial production could be poised for a turnaround—a trend we’ll be monitoring.

Business Investment Takes a Breather—But Don’t Panic

One potential red flag in the Q4 report was a dip in business investment. After 12 straight quarters of growth, nonresidential fixed investment fell by 2.2% annualized, with equipment spending leading the decline at -7.8%.[v] Does this signal trouble ahead? We don’t think so.

Big-ticket purchases like transportation and tech equipment are naturally lumpy, and Q4’s dip followed two quarters of massive growth—transportation equipment sales, for example, soared over 41% in Q2 and another 22% in Q3.[vi] Additionally, a labor strike at a major airplane manufacturer likely contributed to the slowdown, but with the strike resolved, this should be temporary.

Another area to watch is software investment, which actually picked up speed, growing 4.3% in Q4 from 2.5% in Q3.[vii] With strong corporate demand for cloud computing and automation, business investment in tech looks set to remain a bright spot.

Trade: A Temporary Dip, Not a Trend

On the trade front, imports dipped slightly (-0.8% annualized) after surging in Q3.[viii] But this likely reflects businesses front-loading shipments in anticipation of potential port labor disruptions rather than any sign of weakening demand.

Exports also fell at the same rate, largely due to a sharp decline in aircraft and computer exports following massive growth in Q3. Given that forward-looking indicators in the U.S. and globally remain healthy, we see little reason for concern.

The Bottom Line: No Recession in Sight

Despite some bumps in the road, Q4’s GDP report doesn’t signal trouble ahead. Consumer spending is strong, manufacturing could be set for a rebound, and business investment appears to be taking a breather rather than rolling over.

Most importantly, markets aren’t showing signs of distress. Stocks remain near record highs, suggesting investors don’t see a recession on the horizon. While volatility is always possible, economic fundamentals remain solid. For investors, the key takeaway is to stay the course and avoid making short-term decisions based on temporary dips.

As always, keeping a diversified portfolio and focusing on long-term trends is the best way to navigate an ever-changing economic landscape.

[i] Source: US Bureau of Economic Analysis (BEA), as of 1/30/2025. [ii] Source: BEA, as of 1/30/2025. [iii] Source: BEA, as of 1/30/2025. [iv] Source: ISM, as of 1/3/2025. [v] Source: BEA, as of 1/30/2025. [vi] Source: BEA, as of 1/30/2025. [vii] Source: BEA, as of 1/30/2025. [viii] Source: BEA, as of 1/30/2025.

*The information presented in this Presentation is the opinion of the author and does not reflect the views of any other person or entity unless specified. The information provided is believed to be reliable and obtained from reliable sources, but no liability is accepted for inaccuracies. The information provided is for informational purposes and should not be construed as advice. Advisory services offered through In The Money Retirement, an investment adviser registered with the state of Connecticut.