U.S. Q4 GDP Growth Projected to Slow Following Robust Q3 Increase

The U.S. economy is expected to see a slowdown in GDP growth for the fourth quarter, following a substantial rise in the third quarter.

GDP for Q4 is expected to increase by 2.1%

U.S. economic activity is anticipated to register slower growth in the upcoming fourth-quarter GDP report. According to the median nowcast from various sources, GDP growth is projected to decline to its weakest pace since the first quarter of 2024.

Specifically, GDP for Q4 is expected to increase by 2.1% at a real annualized rate. If this estimate holds true, it would represent a significant downshift from the robust 3.1% growth recorded in Q3 and would be the slowest advance since the first quarter of 2024, which saw a modest increase of just 1.6%.

The Bureau of Economic Analysis is set to release the preliminary Q4 data on January 30, providing further insights into the state of the economy as it transitions into 2025. Economists and policymakers will be watching closely to assess the implications of this slowdown, particularly in light of ongoing challenges such as inflation and interest rate adjustments.

US Real GDP Change

The good news is that today’s 2.1% median nowcast is unchanged from the previous estimate published on December 17. The recent stability in the median estimate at this late date for Q4 analysis offers a degree of confidence for expecting growth in the 2% range. Note, however, that a 2% increase is moderately below the 2.7% average for data published over the past four quarters through Q4 2024.

By some accounts, there’s room for stronger estimates. The latest PMI survey data suggests US economic output rose 3%-plus. “The US economy ended 2024 on a high according to the latest business surveys,” says Chris Williamson, chief business economist at S&P Global Market Intelligence. “Business activity in the vast services economy surged higher in the closing month of 2024 on fuller order books and rising optimism about prospects for the year ahead.”

U.S. Economy Expected to Slow in Q4 GDP Growth

The U.S. economy is anticipated to see a reduction in GDP growth during the fourth quarter of 2024, following a year of robust economic activity. Forecasts from the Atlanta Fed's GDPNow model suggest an annualized growth rate of around 2.4% to 2.7% for Q4, a step down from the 3.1% growth experienced in the third quarter. This expected slowdown is part of a broader trend where the economy transitions from the high growth rates of 2023, which saw an annual GDP increase of 2.5% and a 3.3% rise in the last quarter.

Several factors contribute to this projected deceleration. Consumer spending, a major driver of economic growth, is expected to moderate as households grapple with higher borrowing costs due to previous Federal Reserve rate hikes. Additionally, there's a noticeable decrease in business investment, particularly in nonresidential structures, as companies face higher financing costs and policy uncertainty. The manufacturing sector, while previously buoyed by government incentives, is also showing signs of stabilization after a post-COVID recovery surge.

The implications of this slowdown are multifaceted. While a soft landing, where inflation is controlled without triggering a recession, remains a hopeful scenario, there are risks. If consumer confidence dips further or if global economic conditions worsen, the U.S. might face a more pronounced economic contraction. On the other hand, strategic policy responses, including potential rate adjustments by the Federal Reserve in 2025, could mitigate these effects, guiding the economy toward stability.

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