The United States economy expanded at a 2.3% annualised rate in the fourth quarter of 2024, below expectations of 2.6% and down from 3.1% in the previous quarter, according to the U.S. Department of Commerce.
However, consumer spending accelerated at its fastest pace in nearly two years, reflecting strong domestic demand.
Despite the moderation, annual growth reached 2.8% in 2024, slightly below 2023’s 2.9% expansion.
Consumer spending, which constitutes over two-thirds of economic activity, surged at a 4.2% rate, the fastest since early 2023.
This was driven by preemptive purchases ahead of potential tariffs and replacements of vehicles damaged during Hurricanes Helene and Milton. Spending on services, including healthcare, also contributed to the increase.
Business inventories saw a sharp depletion, and a decline in imports surprised economists, despite imports pushing the trade deficit to a record high in December.
The economy remained resilient despite the Federal Reserve’s aggressive rate hikes in 2022 and 2023, which had raised concerns of a potential recession.
The Fed recently held interest rates steady at 4.25% - 4.50%, having cut them by 100 basis points since September. It has signalled only two rate cuts for the year, down from its earlier projection of four, reflecting concerns over the economic impact of proposed fiscal and trade policies.
Labour market conditions remain strong, with initial jobless claims falling by 16,000 to 207,000 for the week ending 25 January. Wage growth continues to support household income, with inflation-adjusted disposable income rising at a 2.8% pace in Q4.
While growth has moderated, economists warn that further trade and fiscal uncertainties could shape the economic trajectory in the coming months.
