US Economy Expands Buoyed by Consumer Spending

The US economy maintained solid growth in the fourth quarter of 2024, driven by robust consumer spending that outweighed headwinds from a Boeing strike and reduced inventory investment.

GDP Growth

According to the government's initial estimate, inflation-adjusted gross domestic product (GDP) increased at an annualized rate of 2.3% in Q4, following a 3.1% increase in the previous quarter. This exceeded the median forecast of 2.6% by economists surveyed by Bloomberg.

Consumer Spending

Consumer spending, the largest component of economic activity, surged by 4.2%, exceeding 3% growth for two consecutive quarters for the first time since late 2021. This increase was primarily driven by higher motor vehicle sales.

Inflation

Meanwhile, a measure of core inflation, which excludes volatile food and energy prices, rose by 2.5%, marking the second quarterly acceleration since late 2022. December inflation and spending figures are scheduled to be released on Friday.

Federal Reserve Response

The GDP figures support the Federal Reserve's cautious approach to further interest rate cuts. Fed Chair Jerome Powell indicated that policymakers are monitoring inflation closely and are not in a hurry to adjust monetary policy.

Underlying Growth Trends

A measure of underlying growth trends that includes consumer spending and business investment, known as final sales to private domestic purchasers, rose by a robust 3.2%. This suggests that the economy is on a healthy trajectory.

Sectoral Performance

Nonresidential fixed investment declined by 2.2%, primarily due to a machinists' strike at Boeing and a slowdown in business spending on equipment. However, residential investment contributed to growth for the first time in three quarters, indicating stabilization in the housing market.

Government Spending

Government spending rose by 2.5%, led by defense expenditures. However, this growth is at risk due to potential cuts proposed by President Trump.

Economic Outlook

Economists forecast moderate growth in 2025, with GDP growth expected to slow to 2.2%. The rollout of Trump's policies, including tariffs, adds an element of uncertainty.

Global Comparison

Compared to global peers, the US economy continues to perform strongly, primarily due to a robust labor market. Unemployment remains low, and wages are rising faster than prices, supporting consumer spending and overall economic activity.