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Growth in the fourth quarter of 2024 looks like it will come in close to 3.0 percent, driven largely by strong growth in consumption and moderate growth in both investment and government spending. This will put GDP growth for the year at close to 2.7 percent.

The biggest component driving strong consumption growth in the quarter is an uptick in durable goods sales, especially car sales. It seems that many consumers bought cars after the election, likely in anticipation of higher import taxes in 2025. If the fear of tariffs is pulling sales of cars and other items forward, we should expect to see some falloff in 2025. Growth in the other two components of consumption, non-durables and services, looks to be much weaker.

With hours growth coming in at close to a 1.0 percent annual rate for the quarter, productivity growth will again be close to 2.0 percent. With yet another quarter of strong productivity growth, the case for a faster trend path is growing stronger.

If we can sustain productivity growth at or above 2.0 percent it means that real wages can grow considerably more rapidly than in the decades before the pandemic, even without reversing the pandemic shift from wages to profits. It also means that inflation is less likely to be a problem, since gains in productivity will reduce cost pressures.

Growth Under Biden Was Far Better than Had Been Projected

If GDP growth comes in at 3.0 percent for the fourth quarter, growth for the four years of the Biden administration will have averaged 3.2 percent. This compares to a growth rate of just 2.7 percent projected by the Congressional Budget Office at the time President Biden took office. The cumulative difference from the faster than projected GDP growth is 2.4 percent or $705 billion as of the end last year. This amount of additional output is equal to more than $5,500 per family.

Goods Consumption Leads Growth

The fastest growth from the pre-pandemic level was in consumer goods and especially durable goods –  consumption of which soared during the pandemic. When people were unable to spend money going to restaurants, seeing movies, or other services, they instead bought cars, appliances and other big-ticket items. This spending leveled off in 2022 as the economy was more fully reopened, but then rose again at a strong pace in 2023 and 2024 – especially for cars, as supply chain issues were resolved. We are likely to see strong growth in durable consumption in the fourth quarter, as many people seem to have rushed to buy cars ahead of possible new tariffs from the Trump administration.

After plunging in 2020, consumption of services bounced back sharply in 2021. Over the four years of the Biden administration, growth averaged just over 4.0 percent. It now stands 11.8 percent above the pre-pandemic level. We should expect to see growth in this component of close to 2.5 percent in the fourth quarter.

Non-Residential Investment Rose Sharply Led by Investment in Intellectual Products

Investment was 23.3 percent higher – a 5.7 percent annual growth rate – than its level when Biden took office. While both structure and equipment investment grew rapidly, investment in intellectual products led the way. Investment in this category was 32.5 percent higher in the third quarter than in the 4th quarter of 2020. Investment in pharmaceutical research and the category of “other non-manufacturing,” which likely includes much AI-related work, grew especially rapidly. The rise in structure spending was led by factory construction, which was 217.1 percent higher in the third quarter of 2023 than in the fourth quarter of 2020.

Investment is likely to again show modest growth in the fourth quarter after growing at a 4.0 percent rate in the third quarter. Equipment investment and construction are both likely to be close to flat, or possibly a small negative. In the case of structures, factory construction is continuing at a very high level, but is no longer increasing. Healthy growth in Investment in intellectual products should outweigh the weakness in these other two categories.

Housing Investment Will be a Small Positive in the Fourth Quarter

Residential construction soared in 2020 and 2021, as low interest rates and the desire for bigger homes for people now able to work remotely led to a huge rise in housing starts. Construction fell back in 2022 after the Fed started raising rates, although it remained close to the pre-pandemic peak. Since bottoming out at the start of 2023, housing construction has edged higher. Starts are currently above the pre-pandemic peak, but not fast enough to make up for the shortfall resulting from the weak construction in the decade following the collapse of the housing bubble. There will likely be a small positive in this component in the fourth quarter.

Net Exports Will Be a Small Positive in the Fourth Quarter

The deficit increased rapidly in the pandemic as many of the goods that people consumed were imported. The deficit expanded from 2.7 percent of GDP in 2019 to a peak of 4.3 percent of GDP in the first quarter of 2022. It fell sharply over the course of the year, hitting 3.0 percent in the first quarter of 2023. Since then, it has bounced around somewhat but remained close to 3.0 percent of GDP.

It was 3.2 percent of GDP in the third quarter, but will likely edge down slightly in the fourth quarter, as net exports make a modest positive contribution to growth. Since the dollar has risen somewhat since the election, we may see some rise in the trade deficit in the quarters ahead, although the prospect of tariffs makes this outlook uncertain.

Very Strong Economy at the Start of the Trump Administration

With healthy growth, low unemployment, and inflation falling close to the Fed’s target, it would be difficult to imagine a better picture at the start of the Trump administration. The Trump administration policies could throw a monkey wrench into this picture, most likely from mass deportations or high tariffs. However, there are other noteworthy risks – such as the economic damage from climate-related disasters and public health problems – that go unaddressed.

However, that is all speculative at this point. Right now, the economy Trump is getting is the best one any president has gotten in many decades.