As the Biden administration transitioned to the Trump White House, the U.S. economy grew at a modest 2.3% annual pace in the last three months of 2024, according to the report’s contents.
Following a 3.1% growth rate in the third quarter, the official economic scorecard, the gross domestic product, slowed in the fourth quarter.
However, slower production of inventory, or unsold items, caused the headline number to drop. That category, which deducts from GDP, is extremely erratic.
In the fourth quarter, consumer expenditure, the main engine of the economy, increased at a rapid rate of 4.2%. It’s roughly twice as high as usual and the largest gain in nearly two years. Approximately 70% of the economy is made up of household spending.
On the other hand, business investment declined for the first time in two years, drawing attention to a persistent downturn among American manufacturers.
Prior to a startling spike in the trade deficit in December, Wall Street Journal-surveyed economists had predicted a 2.5% gain in fourth-quarter GDP. Wall Street experts lowered their projections following that report.
In 2025, the economy is predicted to continue growing at a rate of 2% or more, though the speed of expansion will be influenced by President Donald Trump’s second-term policies.
In an attempt to boost already robust growth, Trump has pledged to lower taxes and regulations—a strategy that businesses support.
However, businesses are also concerned that if other nations impose tariffs of their own in response, Trump’s planned levies may increase their own expenses or harm exports.
The anxiety is exacerbated by a recent increase in inflation.
Questions have been raised over whether the Federal Reserve will permanently halt further decreases in U.S. interest rates, as the annual rate of inflation rose from 1.5% in the third quarter to 2.3% in the fourth.
According to economists, the robust consumer spending also indicates that the economy doesn’t require much assistance from the Fed.
Other important information:
The 0.6% fall in business fixed investment was a result of lower spending on buildings like oil rigs and equipment.
- — Despite a spike in imports in December, the U.S. trade imbalance had no discernible impact on GDP.
- — The headline GDP was reduced by nearly a full percentage point due to a $53.5 billion slowdown in inventory increase.
- — In the fourth quarter, government spending increased at a rate of 2.5 percent, contributing around 0.4 percentage points to GDP.
Overall: In spite of rising interest rates and persistent inflation, the economy has turned out to be far stronger and more resilient than anticipated.
However, the future is unpredictable, and the Trump White House’s economic objectives will not materialize for some time.
For its part, the Fed has paused interest rate decreases until it assesses the impact of Trump’s plans on the economy and until it observes another downturn in inflation. Growth will continue to be hampered by rising borrowing costs.
Considering the future: The “GDP report confirmed that the economy, particularly the consumer, remains strong, and that there is no near-term risk of a recession,” stated Carol Schleif, who is the chief market strategist at Minneapolis’s BMO Private Wealth. “This gives the Federal Reserve the ability to be patient on rate cuts.”
Market response: Thursday’s trading was expected to start with mixed results for the S&P 500 SPX and Dow Jones Industrial Average DJIA.
