The United States’ economic growth decelerated more than anticipated in the last quarter of 2024, according to a report from the U.S. Department of Commerce released on Thursday.
GDP Growth Below Forecasts
Gross domestic product (GDP), which measures the total value of goods and services produced within the U.S. economy, expanded at an annualized rate of 2.3% in Q4 2024. This figure fell short of the 2.5% growth forecasted by economists surveyed by Dow Jones and followed a robust 3.1% increase in the previous quarter.
Despite the slowdown, the report signals a resilient economy. For the full year, GDP expanded by 2.8%, slightly lower than the 2.9% recorded in 2023. Year-over-year growth from Q4 2023 to Q4 2024 stood at 2.5%. The Thursday release marks the first of three estimates from the Bureau of Economic Analysis.
Consumer Spending and Government Expenditures Drive Growth
“Today’s GDP report confirms that the U.S. economic expansion remained solid at the end of 2024,” said Mike Reynolds, Vice President of Glenmede Investment Strategy. “Consumer spending played a key role in sustaining growth.”
Consumer spending surged by 4.2% in Q4, reinforcing its position as the primary engine of economic activity, contributing roughly two-thirds of overall GDP. Additionally, government spending accelerated at a rate of 3.2%, further supporting economic growth.
Trade and Investment Weigh on Growth
While consumer and government expenditures propped up GDP, trade and investment acted as drags on growth. Imports, which subtract from GDP calculations, declined by 0.8%, while exports also fell by 0.8%. Total domestic investment dropped by 5.6%, shaving over a full percentage point off overall economic expansion. Business inventories similarly pulled GDP down by nearly one percentage point.
Labor Market Resilience and Inflation Outlook
The latest economic data also revealed a sharp decline in unemployment claims. Initial jobless claims for the week ending January 25 totaled 207,000, a significant drop of 16,000 from the previous week and well below expectations of 228,000. Continuing claims also declined by 42,000 to 1.86 million, signaling strength in the labor market.
Despite economic resilience, inflation remains a concern. Although price pressures have eased from their peak in mid-2022, they continue to affect American households, particularly lower-income families. The chain-weighted price index, which accounts for consumer substitution of cheaper goods, increased by 2.2% in Q4, accelerating from a 1.9% rise in the prior quarter.
Federal Reserve’s Monetary Policy Stance
The Federal Reserve has maintained a cautious stance on monetary policy. While it reduced the benchmark interest rate by a full percentage point over the final four months of 2024, officials signaled that aggressive rate cuts are unlikely in 2025.
At its most recent meeting, the Federal Open Market Committee provided no indication of imminent rate cuts. Fed Chair Jerome Powell reiterated that policymakers are in no rush to lower rates, emphasizing the need for sustained progress on inflation control.
Consumer Savings Decline
One area of concern is the decline in consumer savings. The personal savings rate fell to 4.1% in Q4, marking a 0.2 percentage point drop from the previous quarter and reaching its lowest level in two years. This suggests that consumers are increasingly dipping into savings to finance their spending.
Economic Outlook for 2025
As the U.S. heads into 2025, economic growth is expected to moderate further, with economists closely watching consumer spending patterns, inflation trends, and Federal Reserve policy decisions. While the labor market remains strong, the balance between sustaining growth and controlling inflation will be a key challenge for policymakers in the coming months.
