The US economy expanded at a healthy annual rate of 2.4% in the final quarter of 2024, according to a slight upgrade in the government’s growth estimate released on Thursday.
The growth was driven by a strong year-end surge in consumer spending, despite challenges posed by a slowdown in business investment and declining inventories.
The increase in Gross Domestic Product (GDP) was down from a 3.1% pace in the third quarter, signalling a deceleration in growth. The overall 2024 economy grew by 2.8%, slightly down from 2.9% in 2023, news agency AP reported.
Consumer spending was a key driver, growing at a 4% pace in the fourth quarter, up from 3.7% in the third quarter. However, business investment fell, with a notable 8.7% drop in investment in equipment. A decline in business inventories contributed to a 0.84 percentage point reduction in GDP growth for the quarter.
A key measure of the economy’s underlying strength, which excludes volatile components such as exports, inventories, and government spending, showed a healthy 2.9% annual growth rate in Q4, slightly revised down from the previous estimate of 3.2%. This was also lower than the 3.4% pace recorded in Q3.
While consumer spending provided a boost, inflationary pressures continued to rise toward the end of 2024. The Federal Reserve’s preferred inflation gauge, the personal consumption expenditures (PCE) price index, rose at an annual rate of 2.4%, up from 1.5% in the third quarter and exceeding the Fed’s 2% target. Core PCE inflation, which excludes volatile food and energy prices, registered 2.6%, up from 2.2% in the prior quarter.
Despite the strong finish to 2024, the outlook for 2025 remains uncertain, particularly with the trade policies of President Donald Trump. His decision to impose new tariffs — including a 25% tax on imported cars — could lead to higher inflation and disrupt business investment, threatening future growth.
The fourth-quarter GDP data reflects the economy before the surge in policy uncertainty and trade tensions escalated, particularly under Trump’s administration. As Ryan Sweet, Chief US Economist at Oxford Economics, noted, “The combination of policy uncertainty, tariffs, and tightening financial market conditions are weighing on growth early this year.”
In addition to trade concerns, US consumer confidence has dropped sharply, driven by fears of inflation and the impact of tariffs. Major retailers have adjusted their expectations for 2025, with some warning that consumers are already curbing their spending. As the year progresses, the economic landscape could face additional challenges from both domestic and international pressures.