The US economy expanded at a faster pace in the fourth quarter than previously estimated amid a robust increase in corporate profits.
Gross domestic product advanced at a 2.4% annualized rate in the October-to-December period, the third release of the figures from the Bureau of Economic Analysis showed Thursday. The Federal Reserve's preferred inflation metric — the personal consumption expenditures price index excluding food and energy — was revised down to 2.6%.
The figures also showed after-tax profits rose 5.9% in the fourth quarter, the most in more than two years. Profits as a share of gross value added for non-financial corporations, a measure of aggregate profit margins, widened to 15.9% — remaining above levels that prevailed from the 1950s to the onset of the pandemic in 2020. That suggests US companies may have room to absorb higher costs from tariffs this year without passing them along to consumers.
“The fourth quarter GDP data tell us the economy entered the year with momentum and profitability and can thus withstand a degree of policy uncertainty,” Wells Fargo economists Shannon Grein and Tim Quinlan wrote in a note following the release. “That said, the concern is increasingly centered on how will businesses act in the face of trade winds leading to tremendous uncertainty this year.”
Forecasters generally anticipate slower growth in 2025 as consumers and businesses grow wary of President Donald Trump's economic agenda. The administration's aggressive trade policy prompted Fed officials last week to mark down their projections, and Wall Street giants including Goldman Sachs and Morgan Stanley have made similar changes.
GDP may be set for an outright contraction in the first quarter thanks to a surge in imports in the first two months of the year, which partly reflects efforts by businesses to stock up on supplies ahead of tariffs. A separate report Thursday showed the trade deficit narrowed only slightly in February from January's record high.
The fourth-quarter numbers were boosted by upward revisions to net exports, government spending and business investment. Growth in consumer spending — which accounts for two-thirds of GDP — was marked lower to 4%.
The government's other main gauge of economic activity — gross domestic income — rose 4.5% after a 1.4% increase in the third quarter. While GDP measures spending on goods and services, GDI measures income generated and costs incurred from producing them. The average of the two growth measures last quarter was 3.5%, the most in a year.
Another report published Thursday showed initial applications for unemployment benefits were little changed at 224,000 last week. The February PCE report, which will show the latest data on consumer spending and inflation, is due Friday.
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