Gross Domestic Product (GDP) quantifies total value of all goods and services produced within a nation’s borders. Therefore, it serves as a measure of economic activity. GDP can be computed using three approaches: production, income, and expenditure. Importantly, real GDP adjusts for inflation, providing a true growth picture. Governments, businesses, and economists utilize GDP to understand trends. Hence, it aids in making informed decisions.
GDP Final Q4 2024
According to the advance estimate the real gross domestic product (GDP) increased at an annual rate of 2.3% in the fourth quarter of 2024 (October, November, and December). This follows a 3.1% increase in the third quarter of 2024.
The growth in real GDP in the fourth quarter was primarily driven by increases in consumer spending and government spending.
These gains were partly offset by a decrease in investment. Additionally, imports, which are subtracted in the calculation of GDP, decreased during this period.
Source: U.S. Bureau of Economic Analysis
The detailed breakdown of the contributing factors to the GDP growth is as follows:
- Consumer Spending:
- Increased consumer spending was a significant factor in the GDP growth for the fourth quarter. This indicates a robust consumer confidence and expenditure during the holiday season.
- Government Spending:
- Government spending also contributed positively to the GDP growth, reflecting increased fiscal activities.
- Investment:
- The decrease in investment partially offset the gains from consumer and government spending. This suggests a cautious approach by businesses towards capital expenditure.
- Imports:
- The decline in imports positively impacted the GDP calculation, as imports are subtracted in the GDP formula.
Overall, the annual growth rate of 2.3% in the fourth quarter reflects a steady economic performance, though it is lower than the 3.1% growth observed in the third quarter. The increases in consumer and government spending highlight the key drivers of economic activity, while the decrease in investment and imports presents areas for potential improvement.
Effects of Q4 GDP on the Stock Market
The GDP report showed a slowdown in growth to 2.3% in Q4 2024, this may dampen investor sentiment as it signals a cooling economy. If the Federal Reserve perceives slower growth as a sign of economic weakness, it might consider maintaining or even lowering interest rates to stimulate the economy.
Overall, the impact of the GDP report on the S&P 500, leads to a more cautious market environment with potential declines in stock prices and increased volatility.
