Personal consumption expenditures, which make up two-thirds of GDP, increased by 3.3% in the final quarter of the year. This growth was driven by higher spending on health care and financial services, although spending on goods was revised downward. Additionally, nonresidential investment figures showed strength, with upward revisions to spending on structures, intellectual property, and equipment.
Inflation rates remained low in the fourth quarter, as the personal consumption expenditures price index rose by just 1.8%. Excluding food and energy from the index, it increased slightly less than expected. Adjusted pre-tax corporate profits also saw a significant increase of 4.1%, the largest since mid-2022. After-tax profits for non-financial corporations stayed high at 15.1%.
Recent earnings reports have shown that publicly traded companies are experiencing higher gross margins due to relief on input costs, but this is not necessarily translating to lower prices for consumers. Investor optimism has continued to rise as a result of this trend and the S&P 500 is currently on track for its fifth consecutive month of gains. President Biden has highlighted strong corporate earnings as evidence 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 after years of demand-driven consumption due to pent up demand. Data for personal consumption expenditures for February will be released on Friday and will provide insight into how long consumers can continue to support economic growth while inflation continues to play a crucial role in determining consumer behavior. Another report also indicated that continuing applications for US unemployment benefits rose to 1