The American economy grew at a solid 2.3% annual rate the last three months of 2024, supported by a burst of year-end consumer spending, the government said, leaving unchanged its initial estimate of fourth-quarter growth.
The US economy experienced a steady 2.3% annual growth rate in the final quarter of 2024, bolstered by a surge in consumer spending at the end of the year, according to government data.
The initial estimate for Q4 growth remains unchanged. However, the economic forecast for 2025 is less certain as President Donald Trump continues to engage in trade wars, federal workforce reductions and mass deportations.
The Commerce Department revealed on Thursday that the gross domestic product (GDP) growth – the total output of goods and services – slowed down from a 3.1% pace in the July-September 2024 period. The economy expanded by 2.8% throughout 2024, slightly lower than the 2.9% growth seen in 2023.
Consumer spending saw a robust increase of 4.2% from October to December. Conversely, business investment declined in the fourth quarter, driven down by a 9% fall in equipment spending.
A decrease in business inventories cut 0.81 percentage points off the growth between October and December. However, a GDP component that gauges the underlying strength of the economy rose at a healthy 3% annual rate from July through September, albeit a slight dip from 3.4% in the third quarter and marginally lower than the government’s initial estimate.
This category includes consumer spending and private investment but excludes fluctuating elements such as exports, inventories and government spending.
Wednesday’s report highlighted the ongoing inflationary pressure within the economy. The Federal Reserve’s preferred measure of inflation, known as the personal consumption expenditures index (PCE), saw a 2.4% annual increase last quarter, a rise from 1.5% in the third quarter and above the Fed’s 2% target.
When excluding unpredictable food and energy prices, the core PCE inflation stood at 2.7%, up from 2.2% in the July-September quarter. Both these inflation figures were marginally higher than those initially reported by the Commerce Department.
The report indicates that Trump took over a robust economy when he assumed office last month. Growth has exceeded a respectable 2% for nine out of the last ten quarters.
Unemployment is low at 4%, and inflation has retreated from the peaks it reached in mid-2022. After reducing its benchmark interest rate three times in the final four months of 2024, the Federal Reserve held it steady in January and seems in no rush to initiate further cuts.
Progress in combating inflation has hit a standstill in recent months. President Donald Trump’s plans to impose import taxes on a scale unseen since the 1930s could potentially drive up prices and exacerbate inflationary pressures. His promise to deport millions of immigrants working illegally in the country could also lead to labour shortages, pushing up wages and fuelling inflation.
The US Labor Department revealed on Thursday that the number of Americans applying for unemployment benefits has unexpectedly surged to a three-month high last week. Some economists are predicting these figures to rise further as layoffs from Elon Musk’s Department of Government Efficiency begin to reflect in the data.
High Frequency Economics is already forecasting a dip in GDP growth to less than 1% for the first quarter, with potential for further decline if Trump proceeds with his plans to impose a hefty 25% tax on goods imported from Canada and Mexico – a move he pledged to make early next week. The GDP report released on Thursday is the second of three assessments by the Commerce Department on the economic growth in the fourth quarter, with the final estimate due on March 27.
