WASHINGTON — The U.S. economy experienced a robust expansion at an annual rate of 2.3% during the last quarter of 2024, buoyed by increased consumer expenditures towards the year’s end. The government’s initial assessment of fourth-quarter growth remained unaltered.
Looking into 2025, uncertainty prevails as President Donald Trump intensifies trade conflicts, reduces the federal workforce, and enacts widespread deportations.
According to the Commerce Department’s report on Thursday, the growth in the gross domestic product (GDP) — a measure of the nation’s production of goods and services — slowed from 3.1% in the third quarter of the previous year. Overall, the economy expanded by 2.8% in 2024, slightly down from 2.9% in 2023.
Between October and December, consumer spending accelerated at a rate of 4.2%. However, business investments saw a decline during the fourth quarter, primarily due to a 9% reduction in equipment expenditures. Furthermore, decreases in business inventories subtracted 0.81 percentage points from the growth in the final quarter of the year.
Despite these figures, a component in the GDP data, which indicates the economy’s core strength, increased at a favorable 3% annual rate from July to September, decreasing from 3.4% in the third quarter and slightly lower than the initial estimation. This component consists of factors such as consumer spending and private investments while excluding more volatile elements like exports, inventories, and government spending.
Additionally, the report highlighted persistent inflationary pressures within the economy. The Federal Reserve’s preferred measure, the personal consumption expenditures index (PCE), grew at a 2.4% annual rate last quarter, up from 1.5% in the preceding quarter and above the Fed’s 2% target. When excluding volatile food and energy costs, the core PCE inflation reached 2.7%, compared to 2.2% in the third quarter, surpassing the initial figures from the Commerce Department’s report.
Trump assumed office inheriting a robust economic landscape, with growth surpassing 2% in nine out of the past ten quarters. The unemployment rate stands at a low 4%, with inflationary spikes from mid-2022 now moderated.
Despite lowering its benchmark interest rate thrice in the final months of 2024, the Federal Reserve maintained its rate in January, showing no urgency for further cuts as inflationary progress has seen a slowdown.
Trump’s move to impose import taxes on a scale seen last in the 1930s may escalate prices and add pressure to inflation. His commitment to deport millions of unauthorized immigrant workers may lead to labor shortages, potentially driving up wages and further fueling inflation.
On Thursday, the Labor Department reported an unexpected rise in unemployment insurance claims to levels unseen in three months. Economists anticipate potential increases in these figures as layoffs from the newly structured Department of Government Efficiency, led by Elon Musk, start becoming evident.
High Frequency Economics projects a GDP growth drop below 1% for the first quarter of 2025 if Trump proceeds with his plans to impose a 25% tax on Canadian and Mexican imports. On Thursday, Trump reaffirmed his intention to implement these measures by early next week.
The report released on Thursday represents the second of three evaluations by the Commerce Department concerning the economic growth of the fourth quarter. The final assessment is scheduled for release on March 27.
