Digging Into US GDP at 2024’s Close

US Q4 gross domestic product (GDP) closed out 2024 with 2.3% annualised growth, bringing the full year to 2.8%.^[i] This shows America’s economy chugging along steadily from 2023’s 2.9% and 2022’s 2.5%—when we saw many commentators warn of impending recession (economic contraction). Reality, it turns out, was better than anticipated, in our view, underpinning the bull market (prolonged period of overall rising stocks) since then. Now, a month into Q1 2025, we don’t think last quarter’s GDP carries much weight for forward-looking markets. But under the bonnet, there are a few insights we think global investors can glean.

First, US consumer spending is robust. As Exhibit 1 shows, America’s personal consumption expenditures (PCE, dark green bar) contributed the most to GDP growth in two years, rising 4.2% annualised in Q4.^[ii] PCE goods accelerated to 6.6% annualised from Q3’s 5.6%.^[iii] Driving demand here: durable goods—stuff that lasts three or more years—particularly motor vehicles and recreational goods, which rose 13.9% annualised and 16.2%, respectively.^[iv] After a roughly two-year hangover from 2020 – 2021’s lockdown-driven binge, goods spending swung higher.^[v]

Exhibit 1: US GDP and Its Contributing Components

Source: FactSet, as of 30/1/2025. US real GDP and components, Q1 2023 – Q4 2024.

Our research shows the stuff economy, so to speak, has been a sore spot globally since 2022, due largely to lockdowns freezing services spending and pulling goods demand forward, leaving a big pothole when trends reversed post-reopening. Services has done the heavy lifting for US economic growth since, which is how its GDP grew nicely even as manufacturing floundered.^[vi] And at two-thirds of PCE, services spending sped to 3.1% annualised from Q3’s 2.8%, led by healthcare expenditures.^[vii]

Interestingly, the pickup in US goods spending isn’t reflected in its domestic manufacturing, which remains flat year over year, extending its sideways trend since 2022.^[viii] Instead, businesses ran down inventories (burgundy bar), which subtracted almost a percentage point from growth. With inventories contributing to GDP in only two quarters over the last two years, we think businesses’ stockpiles in aggregate are probably running lean and mean.^[ix] America’s Institute for Supply Management’s (ISM’s) manufacturing purchasing managers’ index suggests the same as its inventory subcomponent has been below 50 (indicating contraction) in 21 of the last 24 months.^[x] If demand stays steady, which looks likely to us, restocking could mean industrial production globally is poised to pick up—a potential trend reversal we are monitoring closely.

Whilst consumption looked good, that isn’t the US economy’s swing factor. Business investment much more commonly is, and it fell in Q4, which we think warrants a closer look.^[xi] After 12 consecutive quarters of growth, non-residential fixed investment fell -2.2% annualised, shaving -0.3 percentage point off headline GDP (medium green bar in Exhibit 1). Driving the capital expenditures dip: Businesses’ spending on equipment fell -7.8% annualised—namely for transportation (-14.0%) and information processing (-9.5%).^[xii] But we doubt this is the start of a business cycle downturn.

Big-ticket purchases tend to be lumpy—Q4’s retrenchment comes after business investment surged from spring to autumn.^[xiii] Transportation equipment sales rose 41.4% annualised in Q2 and another 22.1% in Q3.^[xiv] Some give back after two quarters of stellar growth isn’t too alarming to us. There was also the matter of a two-month strike at America’s largest airplane manufacturer in Q4.^[xv] But it resolved in November, so this headwind likely dissipates, in our view.

Similarly, information processing investment accelerated from 8.0% annualised in Q2 to 18.0% in Q3 before its Q4 pullback.^[xvi] Within information processing, its computer & peripheral equipment subcategory was the main culprit behind the drop, cratering -23.4% annualised in Q4—finally falling off after four quarters of 20%+ growth rates.^[xvii]

As Exhibit 2 shows, big drops during expansions aren’t unusual in this very choppy category. Moreover, with Q4 earnings season underway, we observe US corporations continue to announce big investments in cloud computing. Given that software spending (under intellectual property products, the other main category within America’s non-residential fixed investment alongside equipment and structures) accelerated to 4.3% annualised in Q4 from Q3’s 2.5%—extending its growth streak since Q2 2020—we don’t think this trend is about to change.^[xviii] Software will still need chips and data centres to run on. And from our vantagepoint, business demand for software and automation remains strong.

Exhibit 2: Choppy Computing Investment Is Choppy

Source: FactSet, as of 30/1/2025. US computer & peripheral non-residential private fixed investment, Q1 2010 – Q4 2024.

The last thing we would note about Q4’s US GDP report: trade. Imports, which reflect domestic demand, fell -0.8% annualised in Q4 after Q3’s 10.7% surge (following Q2’s 7.6% and Q1’s 6.1%).^[xix] We wouldn’t read a whole lot into the big swings here, either—Q3 was when we found businesses front-loading shipments in advance of feared labour disruptions at ports, creating a high base effect.

Exports also fell -0.8% annualised.^[xx] In Q4, American exports’ contraction was led by civilian aircrafts’ -26.2% annualised plunge and computers’ -30.3% dive.^[xxi] But this follows Q3 aircraft and computer exports’ soaring 45.4% and 69.2% annualised growth, respectively.^[xxii] We don’t think it is a stretch to say US suppliers of those goods faced many of the same issues selling to customers globally as they did at home last quarter. Again, on aircraft, there was a now-concluded labour dispute. We think it remains premature to say a global investment downturn is starting, especially when forward-looking indicators like core capital goods orders here and core machinery orders in Japan are on the upswing.

Q4’s speedbumps are temporary, in our view, and don’t point to lasting declines. It isn’t unheard of for business investment—and capital goods exports—to have one-off dips without it beginning a downtrend. Watch and see, but conditions broadly don’t look recessionary to us, and stocks hovering near record highs don’t appear to be pre-pricing one, either.[xxiii] Volatility notwithstanding, they are the ultimate leading indicator and would likely signal problems before any economic readout, in our view.