- by New Deal democrat
As per usual, my focus in reporting on GDP is not the headline number, but the aspects which serve as leading indicators for the economy in the next few quarters.
But to get it out of the way, real GDP increased at a 2.3% rate in the last quarter of last year (red). Since inventories wax and wane, when we take them out and focus on real private sales, real GDP increased at a better 3.2% rate (blue):
This is right in line with average real GDP since the beginning of 2023. The message of the nowcast is “steady as she goes.”
But that doesn’t tell us what to expect going forward. Two metrics, real private residential fixed investment (a proxy for housing) and proprietors’ income (a proxy for corporate profits) do. And there, the news was positive, if tepidly so.
Starting with housing, nominally private fixed investment rose 0.7% in Q4. In real terms, it was up 0.3%:
As you can see, both in nominal and real terms investment in housing has been increasing since the beginning of 2023.
But the actual best way of calculating is housing investment as a percentage of GDP. Here are the nominal and real measures of each:
Nominally, housing investment rose 0.6% as a share of GDP, while in real terms it rose 0.7%. Both of these are average shares since the beginning of 2023, while slightly down from their recent (slight) peak during Q1 2024.
Corporate profits for Q4 will not be reported for another month. Proprietors’ income typically turns simultaneously with or one quarter after corporate profits, so serve as a good placeholder. Here is the long term view (in log terms to better show the historical numbers):
Both of these metrics typically turn down at least one year before the economy as a whole.
Now here is the quarterly change in nominal (light blue) and real (dark blue) proprietors’ income, compare with corporate profits (red):
In Q4, nominally proprietors’ income rose 0.7%. In real terms they rose a meager, but still positive, 0.1%.
Finally, here is the post pandemic close up of the absolute value of each metric, normed to 100 as of Q3 2022:
Since Q3 of 2022, real proprietors income has only risen 0.9%. By contrast, real corporate profits has risen 4.3% through Q3 of last year.
The bottom line is that both of our long leading components of GDP for Q4 came in positive, if only weakly so. A number of indicators have suggested rising recession risk for later in this year, but these two suggest the economy will continue to expand throughout 2025.
