The United States economy advanced at a 2.3% annual rate in the fourth quarter of 2024, according to the Bureau of Economic Analysis (BEA). This figure, consistent with initial estimates, signals stable but moderate growth as the year closes. However, economists are beginning to question whether this momentum can continue, given emerging economic challenges.
The BEA’s second estimate of Q4 GDP reaffirmed the initial estimate. This revision incorporates more comprehensive data and offers a more detailed picture of the economy’s performance during the period. While the Q4 growth is positive, it marks a slowdown from the 3.1% rate recorded in the third quarter.
“The immediate policy changes from the new administration (immigration enforcement and tariffs) are likely to weigh on growth while providing little relief on inflation,” wrote Mike Wilson, an analyst at Morgan Stanley, in a recent client note.
Key Factors in Q4 Growth
The primary drivers of the Q4 expansion were increased consumer spending and government expenditure, which were partially offset by a decrease in business investment. Specific highlights include:
- Consumer spending increased at an annual rate of 4.2%, indicating robust demand, particularly during the holiday season.
- Government spending saw a modest rise, primarily at the state and local levels.
- A decline in business investment, with equipment spending falling by 9%, suggests growing caution among corporations.
Inflation and the Federal Reserve
The BEA report also noted rising inflationary pressures, potentially influencing the Federal Reserve’s policy decisions moving into 2025. The price index for gross domestic purchases increased by 2.3% in the fourth quarter, a slight upward revision from the previous estimate.
Several factors are contributing to concerns about the economic outlook for 2025. Recent data revealed a sharp decline in consumer confidence in February, coupled with rising inflation expectations and heightened fears of a possible recession. These anxieties are partly attributed to the current administration’s policies, including tariffs and immigration measures.
Adding to these concerns, recent data from the U.S. Labour Department showed an increase in unemployment claims, reaching the highest level since December and signalling potential vulnerabilities in the labour market.
Despite the confirmed growth in Q4, the economic outlook for 2025 remains uncertain. While consumer spending continues to be a critical driver, concerns about trade policies, inflation, and labour market conditions are casting a shadow over future growth prospects.