Unanticipated 3.4% GDP Growth and Record-High Corporate Profits in Fourth Quarter

In the fourth quarter, the US economy experienced a 3.4% increase in GDP, surpassing expectations of 3.2% but falling short of the substantial 4.9% growth seen in the third quarter. Adjusted profits after taxes reached a record high of $2.8 trillion, seeing a 3.9% increase, exceeding the anticipated 3.3% rise.

According to Lydia Boussour from EY, corporate profits spiked in the fourth quarter, reaching an all-time high. Before-tax corporate profits saw the most significant increase since the second quarter of 2022, rising by $133 billion. Profit margins expanded for the second quarter in a row, climbing by 0.3 percentage points to 12.2% of GDP due to increased productivity balancing out unit labor costs.

Inflation dropped to 2% in the fourth quarter based on the “core” PCE price index, which excludes food and energy prices – the preferred inflation measure by the Federal Reserve. New monthly core PCE data is set to be released on Friday, indicating a potential year-over-year increase of 2.8%.

Market analysts were pleased with the latest GDP figures and commended positive contributions from consumer spending and nonresidential fixed investment to upward revisions in GDP growth rates. Tobias Burns provided further insights into these numbers in The Hill’s analysis