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We got our first estimate of Q4 GDP this morning. Gross Domestic Product adjusted for inflation (or real GDP) came in at $23.5 trillion in Q4. While nominal GDP came in at $29.7 trillion. The economy is now 12.1% larger than the pre-COVID peak in inflation adjusted dollars.

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This represents a 2.3% annualized growth rate in real GDP for Q4, down from 3.1% annualized growth in Q3. These results missed street expectations of around 2.7% annualized growth for Q4, and below the historical average of 3.2%.

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The year over year rate of growth in real GDP slowed from 2.7% to 2.5%. While nominal GDP stayed consistent at 5% growth.

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The GDP price index increased 2.2% on an annualized basis in Q4, which was below street expectations of 2.5% inflation. But an uptick from Q3’s 1.9% inflation rate. Prices are up at a 2.4% pace over the last 4 quarters.

Breaking down the report by category shows the results were actually a little better than the headline would lead you to believe. The top part of the chart above represents each categories contribution to the final GDP calculation.

Consumer spending was strong, adding 2.8% to GDP, which was the best contribution percentage since Q1 2023. The biggest drag was inventory investments and nonresidential business investments, subtracting a combined 1.2% from Q4 GDP. Total government spending made up about 19% of Q4 GDP (bottom part of the chart), which was slightly below the 4 and 8 quarter average of 21% and 23% respectively.

Not too shabby. We’ll get our first estimates for Q1 GDP tomorrow (Friday). Overall the economy is in decent shape, earnings are pretty solid, but valuations are no longer favorable. 2 out of the 3 pillars of fundamental analysis remain positive.

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