Growth Continued in Q4

The outlook suggests a higher likelihood of recession than commonly anticipated, primarily due to sustained monetary policy tightening since 2022 and persistent inflation above the Federal Reserve's 2.0% target. This indicates that the Federal Reserve is unlikely to ease monetary policy soon. Additionally, significant federal budget deficits, averaging 6.5% of GDP over the past two years, have temporarily concealed the economic strain from tighter monetary policies. Reducing government spending could further dampen short-term economic growth.

Despite these challenges, the economy grew in the fourth quarter, driven by consumer spending and innovation in high-tech industries. Real GDP is estimated to have expanded at a 2.8% annual rate, with consumer spending contributing significantly. Auto sales surged at a 26.4% annual rate, while real retail sales excluding autos showed modest growth.

Business investment grew at an estimated 2.9% rate, led by intellectual property, and residential construction increased at a 2.5% rate, despite higher mortgage rates. Government purchases of goods and services rose at a 2.3% rate, while the trade deficit remained stable, and slower inventory accumulation slightly reduced GDP growth.

Overall, while the economy is not currently in recession, the risk remains due to ongoing economic pressures and policy challenges. A balanced approach considering these factors is crucial for financial advisors and portfolio managers.