U.S. Economy Grows 2.4% Amid Consumer Spending Surge
The U.S. economy demonstrated resilience in the final quarter of 2024, expanding at an annual rate of 2.4%, according to a revised estimate released by the government. This growth was primarily fueled by robust consumer spending, even as business investment faced challenges and inventories declined. Overall, the economy’s growth for 2024 was recorded at 2.8%, a slight decrease from 2.9% in 2023.
Consumer Spending Drives Growth
Consumer spending emerged as a significant contributor to the economic growth in the fourth quarter, increasing at a rate of 4%. This marks an improvement from the 3.7% growth observed in the previous quarter. The surge in consumer expenditure reflects a strong demand for goods and services, which has been crucial for the economy’s performance. However, this positive trend was somewhat offset by a notable decline in business investment, particularly an 8.7% drop in equipment investment. Additionally, a reduction in business inventories negatively impacted GDP growth by 0.84 percentage points during the quarter.
Despite the strong consumer spending figures, the overall economic landscape remains complex. A critical measure of the economy’s underlying strength, which excludes volatile elements like exports and government spending, showed a healthy annual growth rate of 2.9% in the fourth quarter. This figure was slightly revised down from an earlier estimate of 3.2%, indicating a deceleration from the 3.4% growth rate recorded in the third quarter.
Inflationary Pressures on the Rise
As consumer spending surged, inflationary pressures also intensified towards the end of 2024. The Federal Reserve’s preferred inflation measure, the personal consumption expenditures (PCE) price index, rose to an annual rate of 2.4%, up from 1.5% in the third quarter. This increase surpasses the Fed’s target of 2%, raising concerns about potential economic overheating. Core PCE inflation, which excludes the more volatile food and energy prices, also saw a rise to 2.6%, up from 2.2% in the prior quarter.
These inflationary trends could complicate the economic outlook for 2025. The combination of rising prices and uncertainty surrounding trade policies, particularly those implemented by President Donald Trump, may pose challenges for future growth. Trump’s recent decision to impose new tariffs, including a 25% tax on imported cars, has raised concerns about higher inflation and its potential impact on business investment.
Uncertain Outlook for 2025
Despite a strong finish to 2024, the economic outlook for 2025 remains uncertain. Analysts warn that the combination of policy uncertainty, tariffs, and tightening financial conditions could weigh heavily on growth in the coming year. Ryan Sweet, Chief U.S. Economist at Oxford Economics, emphasized that these factors are likely to dampen economic activity early in 2025.
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