Business Desk

The U.S. economy closed 2024 with solid growth, expanding by 2.3% in the final quarter, driven largely by consumer spending, and ahead of what could be a significant shift in policy under a potential Trump administration, reports AP.

The Commerce Department announced that the country’s GDP — the total value of goods and services produced — grew at an annual rate of 2.3% between October and December. For the entire year, the economy grew 2.8%, slightly lower than the 2.9% growth in 2023.

The fourth-quarter growth slightly missed the forecasted 2.4% growth, based on a survey from FactSet. Consumer spending increased at a pace of 4.2%, the fastest since early 2023, up from 3.7% in the third quarter of the year. However, business investment dropped sharply, particularly in equipment after two strong previous quarters.

The report also revealed ongoing inflationary pressure at the close of 2024. The Federal Reserve’s preferred inflation measure, the personal consumption expenditures (PCE) index, rose by 2.3% year-on-year in the final quarter, higher than the 1.5% increase in the third quarter, and above the Fed’s target of 2%. Core PCE inflation, which excludes volatile food and energy prices, was 2.5%, up from 2.2% in the previous quarter.

A reduction in business inventories lowered the fourth-quarter growth by 0.93 percentage points.

However, a category within GDP that measures the economy’s core strength showed a healthy 3.2% annual growth from July to September, although it slightly decreased from the 3.4% rate in the previous quarter. This category includes consumer spending and private investment, excluding more volatile factors like exports, inventories, and government spending.

Economist Paul Ashworth of Capital Economics noted that this suggests the economy remains strong, despite disruptions in the fourth quarter such as a Boeing strike and the aftermath of two hurricanes.
President Donald Trump is inheriting a resilient economy, with steady growth and low unemployment (4.1% in December). Despite the Federal Reserve’s rate hikes — 11 increases in 2022 and 2023 to combat rising consumer prices — the economy has continued to expand, defying predictions of a recession. GDP growth has exceeded 2% in nine of the past ten quarters.

The Federal Reserve left its benchmark interest rate unchanged after three cuts since September. Despite the economy’s strength, Chair Jerome Powell stated there was no urgency to make further cuts, though inflation progress has stalled in recent months after peaking in mid-2022.

The European Central Bank, in contrast, lowered its benchmark rate on Thursday, highlighting the difference between robust U.S. growth and stagnation in Europe, where growth was zero at the close of the year.

The outlook for the U.S. economy has become more uncertain. Trump has promised tax cuts and business deregulation, which could accelerate growth, but his plans to impose heavy taxes on imports and deport millions of undocumented workers could slow growth and increase costs. Trump also stated he would push for lower oil prices and interest rates, though Powell deflected questions on the matter, stating he had not spoken with the president.

Trump is also working to reorganise the federal government, offering buyouts to employees and temporarily freezing federal grants, only to reverse this decision following public backlash.

Ashworth noted that due to the strain on the federal government, he wouldn’t be surprised to see a slowdown in the first quarter of 2025, with GDP growth expected to fall slightly below 2%. The GDP release on Thursday was the first of three estimates from the Commerce Department for the October-December period.