The US economy concluded 2024 on solid ground, showing strong growth driven by consumer spending, according to new figures from the Commerce Department. The economy grew by 2.5% over the past year and recorded a 2.3% annualized growth rate for the final quarter, slightly below the expectations set by economists. Consumers, whose spending constitutes around 70% of the economy, increased their expenditures impressively with growth reaching 4.2%.
According to Ellen Zentner, Chief Economic Strategist at Morgan Stanley Wealth Management, “Fourth-quarter GDP data capped off a surprisingly strong year in 2024.” This increase reflects the resilience of the labor market, along with greater disposable income, as households continued to generate significant momentum heading potentially toward 2025.
Even as the Federal Reserve recently held key interest rates steady, Federal Reserve Chair Jerome Powell remarked, “We do not need to be in a hurry” to make any rate cuts, highlighting the overall strength of the economy. Consumer spending surged, particularly on durable goods—products expected to last for years—indicating shoppers likely acted preemptively to avoid impending tariffs promised by President Trump.
Despite the overall economic health, business investment experienced notable weakness. Nonresidential fixed investments fell at a sharp annualized rate of 2.2% during the fourth quarter, displaying the uncertainty businesses felt toward the incoming administration and its economic policies. Samuel Tombs, Chief US Economist at Pantheon Macroeconomics noted, “Economic growth became increasingly reliant on households last year,” emphasizing the pivotal role consumer behavior played amid declining business investments.
The delay of businesses to invest as expected may signal hesitation due to uncertainty surrounding the Trump administration's policies, which include tariffs and tax cuts promoting reshoring of manufacturing jobs. Robert Frick, Corporate Economist at Navy Federal Credit Union stated, “The one drag was businesses didn’t invest in inventories as much as expected,” pointing to cautious business investment strategies as the primary concern.
Looking forward, the economic outlook remains cautiously optimistic. While Trump’s ambitious economic policies hint at potential expansion, warnings from economists suggest risks could arise, particularly with inflation and trade deficits due to proposed tariffs on goods from Mexico and Canada. Some forecasts indicate these moves could stymie economic growth if executed poorly.
The Federal Reserve, aware of the current economic dynamics, is closely monitoring the labor market and consumer spending trends. Despite some cloudiness surrounding fiscal and immigration policies, many expect the economy will continue to show resilience, with moderate growth anticipated for 2025.
Overall, 2024 capped off as another year of economic resilience for the United States. The Commerce Department's figures paint a picture of sustained growth, particularly through consumer spending, reinforcing the narrative of foundational strength amid political transitions. Whether the momentum can carry through under the new administration will depend significantly on the forthcoming policy environment and how it influences both consumer behavior and broader economic conditions.