Economy Rebounds in Fourth Quarter, Corporate Profits Surge to Record Highs, Inflation Eases

The U.S. economy experienced a 3.4 percent increase in GDP in the fourth quarter, surpassing expectations of 3.2 percent but falling short of the substantial 4.9 percent growth in the third quarter, according to the Commerce Department. Adjusted profits after taxes reached a record high of $2.8 trillion, seeing a 3.9 percent increase, exceeding the anticipated 3.3 percent rise.

Corporate profits spiked in the fourth quarter, reaching an all-time high, as noted by economist Lydia Boussour from EY in her analysis. Before-tax corporate profits saw their most significant increase since the second quarter of 2022, rising by $133 billion to reach a new high of $150 billion during that period. Profit margins expanded for the second quarter in a row, climbing by 0.3 percentage points to 12.2 percent of GDP due to increased productivity balancing out unit labor costs.

Inflation dropped to its lowest level since early 2017 at just 2 percent 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 and is expected to indicate a slight year-over-year increase of around 2 percent for January, providing some relief for consumers concerned about rising prices.

Market analysts were pleased with the latest GDP figures and highlighted that consumer spending and nonresidential fixed investment made positive contributions to the upward revision of GDP growth despite lower than expected industrial production levels due to supply chain disruptions caused by China’s lockdowns and winter storms across North America