Washington – A humming American economy ended 2024 on a solid note with consumer spending continuing to drive growth, and it might be facing significant changes under the incoming Trump administration.
The Commerce Department reported on Thursday the gross domestic product (GDP) – which measures the economy’s output of goods and services – grew at a 2.3% annual rate from October through December. For the year, the economy expanded at an annual rate of 2.8%, compared to 2.9% the year before. "We ended on a pretty strong note," declared Diane Swonk, chief economist for KPMG.
Much of this growth stemmed from notable consumer spending, which surged at 4.2%, the fastest pace since early 2023 and up from 3.7% just three months prior. Americans made substantial purchases of durable goods like cars, appliances, and furniture, motivated by fears of rising prices from potential new import taxes under the Trump administration.
"(President Donald) Trump's talk of higher import taxes is already altering behavior by U.S. households," observed Joe Brusuelas, principal and chief economist for RSM US, highlighting how anticipation of increased costs influenced shopping patterns.
Despite the growth, there were also signs of economic strain. Business investment saw declines, with spending on equipment plummeting following two prior quarters of strong investment. Meanwhile, inflation remained persistent, evidenced by the personal consumption expenditures (PCE) index – the Federal Reserve’s preferred inflation metric – which rose at 2.3% annually, up from 1.5% the previous quarter and well above the Fed’s 2% target.
Core PCE inflation, which excludes volatile food and energy prices, increased to 2.5%, signaling continuing inflationary pressures. Paul Ashworth, chief North America economist at Capital Economics, suggested the data indicates the economy remains fundamentally strong, particularly considering disruptions from strikes, such as at Boeing, and recent hurricanes.
"This figure suggests the economy remains strong, particularly during fourth-quarter disruptions," said Ashworth. The broader economic picture showed growth exceeding 2% for nine of the last ten quarters, with unemployment resting at 4.1% as of December. This performance has been remarkable, especially following the Federal Reserve’s aggressive interest rate hikes meant to control inflation, which rose 11 times over two years.
The Fed held its benchmark interest rate steady on Wednesday after implementing three cuts since September, signaling caution as the economy shows resilience yet faces potential headwinds. Fed Chair Jerome Powell remarked, "We do not need to be in a hurry" when it came to making more cuts.
Nevertheless, the path forward became cloudy with Trump, now taking the reins, promising tax cuts and regulatory rollbacks intended to boost economic activity. At the same time, his proposals to impose hefty import taxes and considerable changes to immigration could slow growth and boost prices, impacting the overall economy's health moving forward.
"Households are struggling and frustrated with prices," stated Beth Ann Bovino, chief economist at U.S. Bank. There’s significant concern about the impact of Trump’s policies on economic momentum; uncertainty looms as the nation heads toward 2025. Ali Wolf, chief economist at Zonda, warned, "There’s no shortage of wild cards to watch in 2025."
Looking at the figures from the Commerce Department’s latest report, which was the first of three estimates for Q4 growth, expectations for Q1 may start to see slight downturns, with some analysts predicting modest slips below the 2% growth mark.
Economists and Americans alike will be keeping a close eye on the new administration’s policies and their potential state of the economy as this year rolls on. The balance between continued growth and stabilizing inflation seems to depend heavily on forthcoming decisions from Trump and the responses of both businesses and consumers alike.