US Economic Growth Slows in Q4, Consumer Spending Stays Strong
The US economy grew at a slower-than-expected pace of 2.3% in the fourth quarter of 2024, according to the Bureau of Economic Analysis. This falls below the 2.6% growth projection by economists. The GDP growth rate also declined from the 3.1% seen in Q3.
Increased consumer and government spending drove economic growth in Q4, while decreased investment partially offset these gains. For the entire year, the US economy expanded by 2.8%, slightly lower than the 2.9% growth in 2023 but higher than the 2.5% seen in 2022.
"Consumer spending continued to drive overall economic growth due to strong employment, wage gains, and wealth effects from rising equity and home values," said Kathy Bostjancic, chief economist at Nationwide.
However, business investment declined, net exports remained flat, and inventories fell sharply. The inventory drawdown, particularly at the wholesale level, suggests retailers stocked up ahead of potential tariffs. This trend may continue into early 2025.
Meanwhile, the core Personal Consumption Expenditures index (excluding food and energy) increased by 2.5% in Q4, meeting expectations and exceeding the 2.2% growth in the previous quarter.
The GDP report has implications for the Federal Reserve's interest rate outlook. Despite keeping rates steady at its Wednesday meeting, Fed Chair Jerome Powell acknowledged that inflation remains elevated. However, he indicated that the Fed is "not in a hurry" to adjust its policy stance.
According to the CME FedWatch Tool, markets now project less than a 50% chance of a rate cut by the Fed before its June meeting.