Consumer Power: How Q4 GDP Reflects Economic Strength | Episode 093 | 01-25-24

Megan Horneman, Chief Investment Officer at Verdence Capital Advisors, breaks down the latest fourth-quarter GDP report in today's episode. The report exceeded expectations with a 3.3% growth rate, outperforming the forecasted 2%. Consumer strength, contributing 70-75% to the economy, remains robust, while government spending, net exports, and domestic investment play pivotal roles in economic growth. Despite concerns about escalating government spending and a worsening deficit, the Fed finds comfort in the 2% core PCE index. The markets respond positively, aligning with the soft landing view, and the Fed is unlikely to cut rates soon, shifting focus to inflation and employment reports. For questions or feedback, reach out to podcast at Verdence dot com.

Watch today's episode here:

Hello, this is Megan Horneman, the Chief Investment Officer for Verdence Capital Advisors. We're coming to you today to discuss the fourth quarter GDP report that we got this morning, and this report came in much better than was anticipated. The economists that were forecast expected a 2% growth rate in the fourth quarter and GDP on this first reading actually came in at 3.3%. So pretty solid economic growth in the fourth quarter. This comes off of almost 5% economic growth in the third quarter of last year. Let's just dig into some of the details here. Personal consumption did come in better as well. So, as we know, the consumer makes up about 70 to 75% of the economy. So as the consumer remains strong, so does the GDP numbers. But the second biggest contribution to economic growth for the quarter was government spending, and following that was net exports, meaning that we exported more goods than we imported and then domestic investment, primarily on equipment, in equipment and structures and information processing. So what does this all mean? First of all, this is backward looking. We saw that the retail sales numbers came in pretty strong for both November and December, so a strong showing by the consumer in this report is not surprising to me. The government spending is frightening. We continue to spend money even though the deficit continues to get worse as well and our net interest costs continue to skyrocket. That's a concerning thing for me.

The Fed will like the fact that the core PCE index so that's what the price index was for GDP. That was 2%, so the Fed's going to like that. We will continue to look at some of the forward looking data that we get, because we have not received much from January yet as far as what the first quarter of this year will pan out to be, but again rounded out, a great year good from a GDP perspective. The markets liked that, especially since this soft landing view is coming into play. We don't think this is going to have the Fed doing anything.

They're not going to cut rates. They'll be watching inflation much more closer again now, as well as the employment reports, but they're not going to be cutting rates anytime soon. There's just simply no need to do that Now. In speaking of inflation, we tomorrow have their preferred the Fed's preferred inflation gauge, so we're back to talk some more about that. That's the PCE deflator, as well as personal income and spending, so we'll get a little bit more clarity around the health of the consumer as well. That's all we have today. If you have any questions or comments or feedback, please feel free to reach out to podcast at Verdence dot com. Thank you.