Shoppers carry bags at Broadway Plaza in Walnut Creek, California.
The U.S. economy expanded at a solid pace at the end of 2024, fueled by a generous tailwind from consumer spending that more than offset drags from a strike at Boeing Co. and much leaner inventory investment.
Inflation-adjusted gross domestic product (GDP) increased an annualized rate of 2.3 percent in the fourth quarter, after rising 3.1 percent in the prior three-month period, according to the government’s initial estimate published Thursday. The median forecast in a Bloomberg survey of economists called for 2.6 percent growth.
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Consumer spending, which comprises the largest share of economic activity, advanced at a 4.2 percent pace—the first time since late 2021 that growth has exceeded 3 percent in consecutive quarters. The acceleration was the biggest since early 2023 and was led by a pickup in motor vehicle sales.
At the same time, a closely watched measure of underlying inflation rose 2.5 percent, marking only the second quarterly acceleration since late 2022, the Bureau of Economic Analysis (BEA) data showed. December inflation and spending figures are due Friday.
The GDP figures cap another solid year for the world’s largest economy, which defied expectations for a marked slowdown as consumers hung tough in the face of persistent inflation and high borrowing costs. The economy grew 2.8 percent in 2024, after expanding 2.9 percent and 2.5 percent in the prior two years, respectively.
That helps explain why the Federal Reserve is taking a more measured approach to future interest rate cuts. Chair Jerome Powell, speaking after the central bank held rates steady yesterday, said policymakers are waiting to see further progress on inflation and “do not need to be in a hurry to adjust our policy stance.” He also said the economy is strong, which was further corroborated by the GDP report. A measure of underlying growth trends favored by economists—a metric known as final sales to private domestic purchasers, which includes consumer spending and business investment—advanced at a robust 3.2 percent pace.
“This report will assure the Fed [that their] policy was not overly restrictive last quarter and reinforces Chair Powell’s assertion yesterday that monetary policy is in a good place. Whatever the economic fundamentals were at the end of last year, however, new federal policies could set the economy on a new path soon,” Will Compernolle, macro strategist at FHN Financial, said in a note. “All of this points to a patient Fed that can wait to see how the incoming data evolve.”
Nonresidential fixed investment declined an annualized 2.2 percent, the first decline in more than three years. Business spending on equipment decreased an annualized 7.8 percent, reflecting the impact of a machinists’ strike at aircraft maker Boeing. Investment in aircraft slumped by 69 percent pace, and business spending on computer equipment dropped for the first time in more than a year. Outlays for structures declined for a second straight quarter.
Residential investment added to growth for the first time in three quarters, suggesting the housing market and construction are starting to stabilize. However, separate data Thursday showed pending sales of U.S. homes declined last month for the first time since July, as high borrowing costs and prices especially hit the costliest parts of the country.
Government spending rose an annualized rate of 2.5 percent following a strong third-quarter advance that was led by defense expenditures. Growth in federal spending is at risk as President Donald Trump’s agenda takes aim at programs he’s pledged to eliminate.
Other parts of the economy didn’t score as well on the fourth-quarter report card. Inventories were the largest drag, subtracting nearly a full percentage point from growth—the most since early 2023.
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What Bloomberg Economists Say...
“The fourth-quarter GDP report is stronger than it looks at first glance—especially if inventories are excluded. That ultimately reflects a surge in demand from consumers that has fueled talk of U.S. exceptionalism. It also gives the Fed leeway to be more patient on rates while it gauges the impact from Trump administration policies.”The outlook for the economy this year is one of more moderate growth. The latest Bloomberg monthly survey shows economists expect, on average, GDP growth to cool to 2.2 percent this year, with only a few Fed interest rate cuts. At the same time, the rollout of Trump policies add an element of uncertainty.
Trump is looking to deploy tariffs—perhaps as soon as this Saturday—in order to spur investment in manufacturing and encourage domestic production, which he says will help bring factory jobs home and reduce the trade deficit. However, the tariffs Trump enacted in his first term coincided with a drop in factory employment and contraction of industrial production, amounting to a drag on growth that concerned Fed officials at the time, according to newly released transcripts of 2019 policy meetings.
The threat of tariffs has the rest of the world concerned, as they come at a time when major economies are struggling. The U.S. economy continues to outperform its global peers largely due to a strong labor market marked by low unemployment and wages rising faster than prices. That’s helped to sustain consumer spending and broader economic activity.
Other figures Thursday showed applications for U.S. unemployment benefits dropped by the most in six weeks, according to Labor Department data released Thursday. Continuing claims fell from a three-year high.
The U.S. economy grew 2.5 percent in Q4/2024 relative to Q4/2023, much faster than the Eurozone’s relative growth of just 0.9 percent in Q4/2024 vs. Q4/2023. In Germany, GDP shrank 0.2 percent in Q4/2024, after a 0.3 percent GDP decline in Q4/2023—just the second time since 1950 that Europe’s largest economy has contracted two years in a row. The French economy grew just 0.7 percent from the fourth quarter of 2023 to Q4/2024.
Turning to Asia, recent data showed China’s two-track economy continued to be powered by trade, while consumer spending remained muted—contributing to a deflationary spiral that’s expected to persist this year. Unadjusted for price changes, the Chinese economy slowed to 4.2 percent in 2024, the second-weakest pace since China began transitioning to a market economy in the late 1970s.
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