WASHINGTON — The American economy maintained its momentum as it wrapped up 2024, bolstered primarily by robust consumer spending. This growth comes just before a potentially significant shift in economic policy with the incoming Trump administration.
The Commerce Department announced on Thursday that the gross domestic product (GDP)—which reflects the total output of goods and services—grew at an annual rate of 2.3% in the final quarter of the year. For 2024 as a whole, the economy posted a respectable growth rate of 2.8%, slightly down from the 2.9% achieved in 2023.
The growth in the fourth quarter, however, fell short of economists’ expectations, which had projected a rate of 2.4% according to a survey by FactSet. Consumer spending surged at a pace of 4.2%, marking the fastest increase since the first quarter of 2023 and a rise from 3.7% in the third quarter. Meanwhile, a notable decline in business investment was observed, significantly driven by a drop in equipment spending following two quarters of strong performance.
The report also highlighted ongoing inflationary pressures as 2024 concluded. The preferred inflation measure of the Federal Reserve, known as the personal consumption expenditures (PCE) index, escalated to a 2.3% annual rate during the last quarter, up from 1.5% in the previous quarter and surpassing the Fed’s 2% target. When excluding the notoriously volatile food and energy sectors, core PCE inflation rose to 2.5%, an increase from 2.2% in the July-September period.
Additionally, a reduction in business inventories negatively impacted growth by 0.93 percentage points in the fourth quarter. Despite this, a more stable indicator of economic health, which focuses on core components like consumer spending and private investment, grew at a solid annual rate of 3.2% from July to September, down slightly from 3.4% in the previous quarter. Economists like Paul Ashworth from Capital Economics commented that this suggests overall economic strength, particularly considering disruptions in the fourth quarter, such as a strike at Boeing and the aftermath of two hurricanes.
As of December, President Donald Trump is stepping into office with a flourishing economy, characterized by steady growth and low unemployment, which stood at 4.1%. The economy has shown remarkable resilience, even following the Federal Reserve’s decision to raise interest rates 11 times throughout 2022 and 2023 to combat a surge in consumer prices—the highest inflation witnessed since the 1980s. Contrary to predictions of an impending recession, GDP growth has exceeded 2% in nine out of the last ten quarters.
The Federal Reserve recently opted to keep its benchmark interest rate steady after implementing three rate cuts since September. With the economy maintaining its upward trend, Fed Chair Jerome Powell indicated that there is no urgency for additional cuts. However, the Fed remains cautious, as inflation has seen stagnant progress after a significant drop from peak levels recorded in mid-2022.
In contrast, the European Central Bank announced a reduction of its benchmark rate by a quarter point, highlighting the differences between the stronger growth in the U.S. and the stagnation faced in Europe, which experienced zero growth towards the end of the previous year.
Looking ahead, the economic outlook under a Trump administration appears somewhat uncertain. Although Trump proposes tax cuts and deregulation to stimulate GDP growth, his plans to impose tariffs on imports and deport millions of undocumented workers could potentially hinder growth and elevate prices. He recently mentioned intentions to lower oil prices and request reduced interest rates, an issue he claims he will discuss with Powell, though the Fed Chair has been noncommittal about these remarks and claims no direct communication with the president has taken place.
Moreover, Trump has initiated changes within the federal government, including proposals for buyouts of government employees and a temporary freeze on federal grants, which was quickly rescinded after public backlash. Ashworth speculated that the “squeeze” on the federal government might lead to a slowing GDP growth rate in the first quarter of the following year, projecting it could fall slightly below 2%. This GDP report is the initial release of three estimates on the economic performance from October to December.
