US Economic Growth Slows in Q4, Consumer Spending Remains Strong
The US economy grew at an annualized pace of 2.3% in the fourth quarter of 2024, below market expectations of 2.6%. The Bureau of Economic Analysis (BEA) reported that the slower growth was primarily driven by a decline in business investment and a sharp decrease in inventories.
Despite the reduced pace, consumer spending and government expenditure contributed to the economic expansion. For the full year, the economy grew at a rate of 2.8%, slightly lower than 2023's 2.9% but higher than the 2.5% growth recorded in 2022.
Excluding volatile food and energy categories, the core Personal Consumption Expenditures index rose by 2.5% in Q4, in line with estimates and above the previous quarter's 2.2%.
Following the Federal Reserve's decision to hold interest rates steady, investors are assessing the likelihood of rate cuts in 2025. While Fed Chair Powell acknowledged that the economy remains strong, he emphasized that inflation "remains somewhat elevated."
Market sentiment suggests a less than 50% chance of a rate cut before the Fed's June meeting.
Despite the slower growth in Q4, consumer spending remains a driving force for the US economy, supported by steady employment, wage gains, and wealth effects. However, business investment, net exports, and inventory drawdowns have partially offset these gains.