The U.S. economy finished 2024 on solid ground, continuing to show resilience amid consumer-driven growth, according to reports released by the Commerce Department. The Gross Domestic Product (GDP), which gauges the economy's output of goods and services, expanded at an annual rate of 2.3% from October through December. For the entire year, the economy exhibited notable growth of 2.8%, slightly down from 2.9% in 2023.
Consumer spending, which serves as a barometer for economic health and activity, surged at a 4.2% annual rate during the final quarter of 2024. This represented the fastest pace since early 2023 and marked an increase from 3.7% during the previous quarter, signalling consumer confidence amid fluctuated business sentiment. Despite this, challenges remained, particularly with business investments taking a downturn as spending on equipment fell after two consecutive quarters of growth.
Compounding the picture of economic growth was persistent inflation, which appears to be progressing at rates concerning for policymakers. The Federal Reserve's preferred measure of inflation, known as the Personal Consumption Expenditures (PCE) index, increased at 2.3% annually for the last quarter of 2024, up from 1.5% just three months prior. When isolative of volatile categories like food and energy, core PCE inflation jumped to 2.5%, reflecting both continued consumer demand and underlying price pressures.
With unemployment steady at 4.1% as of December, Fed Chair Jerome Powell suggested the economy was on firmer footing but noted the Fed's decision to keep interest rates unchanged as inflationary pressures remain more resilient than anticipated. "We do not need to be in a hurry" to make additional cuts, Powell stated, highlighting the Fed’s cautious stance on managing monetary policy against inflation rates hovering above the target levels.
The economic outlook presents mixed signals. President Trump’s administration has vowed to reduce taxes and deregulate to boost business investment, which may contribute positively to GDP. Conversely, proposals to impose substantial import taxes and deport undocumented workers could result in slower growth and increased prices, as some economists warn of potential inflation driven by these policies.
Looking forward, the inflation outlook carries both positive and negative indicators. Data from December indicated a consumer price increase of 2.6% year-on-year, up from 2.4% the prior month. Core prices matched this trend, rising to 2.8%, steady for the last three months, underscoring how persistent inflation remains stubbornly above the Fed's desired 2% mark.
Concerns linger over future pricing, especially as businesses traditionally hike prices at the start of the year, which might temporarily inflate readings. Chief North America economist Paul Ashworth articulated concerns of price increases stemming from potential tariff implementations by the Trump administration earlier than anticipated. "Beyondthat,the growing riskthat Trump will impose tariffs... presentsan upside risk to inflation," Ashworth cautioned.
Despite these inflationary pressures, some indicators suggest potential moderation lies ahead. Housing costs and rent prices are gradually stabilizing, and wage growth has remained tepid due to labor market sluggishness, implying businesses may not feel compelled to drastically raise prices amid restrained consumer spending growth. “We seem to be set up for...further progress,” Powell noted with cautious optimism during highlighting underlying trends impacting inflation.
Overall, the American economic performance stands at the intersection of growing consumer confidence and troubling price pressures, with analysts closely observing how governmental policies will intertwine with broader economic indicators as 2025 approaches. The interplay of consumer spending and business investment will remain pivotal as the Fed balances its rates against the needs of the economy.