The United States economy grew at an annual rate of 2.4% in the final quarter of 2024, buoyed by a significant increase in consumer spending toward the year’s end, as reported by the government on Thursday.
This figure represents a slight upgrade from previous estimates of fourth-quarter growth. However, the sustainability of this economic growth is in question as President Donald Trump continues to engage in trade wars, execute widespread federal workforce reductions, and pledge mass deportations of undocumented immigrants.
According to the Commerce Department, the growth in gross domestic product (GDP)—the total value of goods and services produced—slowed from a 3.1% rate in the third quarter of 2024. Over the entire year, the U.S. economy, the largest in the world, expanded by 2.8%, a slight decrease from the 2.9% growth rate seen in 2023. Consumer spending, however, increased by 4%, up from a 3.7% rate in the third quarter of 2023.
Despite strong consumer activity, business investment declined significantly, with a notable 8.7% decrease in equipment investment. Additionally, a reduction in business inventories subtracted 0.84 percentage points from fourth-quarter GDP growth. A sector of the GDP data that indicates the economy’s fundamental strength grew at a solid 2.9% annual rate in the fourth quarter. This was a reduction from both the government’s previous estimate of 3.2% and the 3.4% rate in the third quarter, encompassing consumer spending and private investment but excluding exports, inventories, and government expenditures.
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The report from Wednesday highlighted ongoing inflationary pressures at the close of 2024. The Federal Reserve’s preferred inflation measure—the personal consumption expenditures (PCE) price index—rose by 2.4% annually, up from 1.5% in the previous quarter and surpassing the Federal Reserve’s 2% inflation target. Core PCE inflation, which excludes volatile food and energy prices, increased to 2.6% from 2.2% in the third quarter.
Thursday’s report marked the government’s third and final assessment of fourth-quarter GDP, casting a shadow over the economic outlook. President Trump’s imposition of taxes on a wide array of imports, including a newly announced 25% tariff on foreign automobiles, could exacerbate inflation and disrupt investment, potentially hindering growth.
Ryan Sweet, Chief U.S. Economist at Oxford Economics, remarked, “The fourth quarter reflected the U.S. economy before the significant surge in policy uncertainty, particularly in trade, and the additional tariffs imposed by the Trump administration. The combination of policy uncertainty, tariffs, and tightening financial market conditions is weighing on growth early this year.”
U.S. consumer confidence is experiencing a steep decline amid concerns about tariffs and inflation, prompting major retailers to adjust their annual forecasts as consumers begin to reduce their spending.
The Ripple Effect: Understanding the Broader Impact
- The anticipated rise in inflation could increase the cost of living, impacting household budgets and spending power.
- Tariffs on imports may lead to higher prices for goods, straining consumer wallets and reducing discretionary spending.
- Uncertainty in trade policies could deter business investments, slowing job creation and economic expansion.
- The decline in business investment might limit opportunities for technological advancements and infrastructure improvements.
- Continued inflationary pressures could prompt the Federal Reserve to adjust interest rates, affecting loans and mortgages.
- Consumer confidence dips might influence retail sales, impacting businesses and potentially leading to store closures or workforce reductions.
- Mass deportations could disrupt industries relying on undocumented labor, affecting productivity and economic stability.
- Potential shifts in federal workforce dynamics could alter public service delivery and efficiency.
- Financial market volatility could impact retirement savings and investment portfolios, affecting financial planning.
- Changes in international trade relations may alter the global economic landscape, affecting export-driven sectors.
