US economy grew at an upwardly revised rate of 3.4% in the fourth quarter

In the fourth quarter, consumer spending increased by 3.3%, driven primarily by higher spending on health care and financial services. Although spending on goods was revised lower, nonresidential investment figures strengthened, with upward revisions to spending on structures, intellectual property, and equipment.

The personal consumption expenditures price index, the Federal Reserve’s preferred inflation metric, rose at an annual rate of 1.8% in the fourth quarter, the lowest since 2020. Excluding food and energy, the index increased by 2%, slightly less than the previous estimate. Despite this, adjusted pre-tax corporate profits saw a 4.1% increase in the same quarter, the largest since mid-2022. After-tax profits as a share of gross value added for non-financial corporations remained high at 15.1%.

Recent earnings reports have shown that publicly-traded companies are experiencing higher gross margins due to relief on input costs, though this isn’t necessarily translating to lower prices for consumers. This trend has contributed to investor optimism, as the S&P 500 is on track for its fifth consecutive month of gains. President Joe Biden has highlighted strong corporate earnings as a sign of companies profiting off of consumers with high prices, especially in grocery stores.

Recent economic indicators suggest that consumers may be becoming more selective in their spending following years of pent-up demand-driven consumption. Data on personal consumption expenditures for February are expected on Friday, and will provide insights into how long consumers can continue to support economic growth amidst rising inflation and labor market challenges. Another report showed that continuing applications for US unemployment benefits rose to 1.82 million in the week ending March 16

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