In the last three months of 2024, the upward dynamic of the United States economic system began to show a slowdown, but still, growth in this case was a steady process, and not a kind of symbolic alternation of ups and downs, forming a situation of sharp manifestations of multidirectional phenomena.
At the end of last year, the US saw a significant increase in consumer spending, which fully offset the negative effects of the strike at Boeing Co. and much leaner inventory investment.
Inflation-adjusted the gross domestic product (GDP) of the United States in the fourth quarter of 2024 showed growth of 2.3% year-on-year. This is evidenced by the government’s initial estimate, published on Thursday, January 30. It is worth noting that in the third quarter of last year, the GDP of the United States increased by 3.1%.
Experts interviewed by the media predicted that the US economic system would show growth of 2.6% in the fourth quarter of 2024.
Consumer spending, which has the largest share in the structure of economic activity in the United States, increased by 4.2% from October to December last year. These growth rates were recorded for the first time since the end of 2021. Outlays have exceeded 3% in consecutive quarters. The mentioned acceleration was the most significant since the beginning of 2023. The corresponding tendency is related to the growth of sales of motor vehicles.
Data from the US Bureau of Economic Analysis shows that a closely watched measure of underlying inflation increased by 2.5% in the fourth quarter of 2024. In this case, there is only the second quarterly acceleration since the end of 2022. December inflation and spending figures will be published on Friday, January 31.
The S&P 500 opened higher. At the same time, United States Treasuries pared gains and the dollar remained lower.
The GDP data released on Thursday indicates that 2024 was a period of growth for the US economic system, which is the largest in the world, despite the slowdown in the corresponding upward dynamic from October to December. It is worth noting that last year, some analysts predicted that the slowdown in the rise of the mentioned indicator in the United States would be more widespread compared to the final result.
Consumer activity in the US continues to be intense. However, this does not mean that there are absolutely no problems. In the United States, consumers continue to face the sensitive impact of such negative circumstances of the current economic reality configuration as persistent inflation, which has still not reached the Federal Reserve’s target of 2%, and high borrowing costs.
For the whole of 2024, US GDP showed growth of 2.8%. In 2023, the corresponding indicator increased by 2.9%. In 2022, the GDP of the United States grew by 2.5%. This result was recorded when inflation rose to a 40-year high.
The current dynamic of the United States economic system is the reason why the country’s financial regulator adheres to a more measured approach to future interest rate cutting.
Fed Chairman Jerome Powell, speaking after the US central bank decided last Wednesday, January 29, to keep borrowing costs at the same level, said that policymakers expect further progress in combating against inflation. He also noted that there is currently no need to rush to adjust the policy stance of the financial regulator. According to him, the economic system of the United States is now strong. The GDP data actually confirmed the mentioned statement.
A measure of underlying growth tendencies favored by economists that includes consumer spending and business investment, known as final sales to private domestic purchasers, advanced at a 3.2% pace.
Will Compernolle, macro strategist at FHN Financial, said that the GDP data will ensure that the monetary policy of the United States was not excessively restrictive in the fourth quarter of 2024, and will confirm Jerome Powell’s statement on Wednesday that the mentioned policy is in a good place. At the same time, the expert noted that whatever the economic fundamentals were at the end of last year, the new federal policies may soon set the economy on a new path.
Will Compernolle also stated that the central bank of the United States can wait to see how the incoming data evolves.
The US GDP data for the fourth quarter of 2024 turned out to be stronger than some preliminary forecasts for the dynamic of the corresponding indicator. Consumer activity in the United States is showing strength, despite all sorts of difficulties and adverse circumstances. It is already virtually obvious that the Fed will adhere to some kind of wait-and-see tactics. In the relevant context, the most important question for the financial regulator is what impact the policy of the administration of the President of the United States, Donald Trump, will have on the situation in the space of the economic system.
Nonresidential fixed investment fell 2.2% year-on-year. It is worth noting that in this case, there is the first decrease in the mentioned indicator in more than three years.
Business spending on equipment fell by 7.8% year-on-year. In this case, the impact on the dynamic of the indicator was caused by the consequences of the strike of the machinists of the Boeing aircraft manufacturing company.
Investments in aircraft decreased at a 69% pace. Business spending on computer equipment fell for the first time in more than a year. Outlays for structures are on a downward trajectory for the second quarter in a row.
Residential investments added to growth for the first time in three quarters. This indicates that the housing market and construction are beginning to stabilize.
Government spending grew by 2.5% year-on-year. It is worth noting that in the third quarter of 2024, a significant increase in the corresponding indicator was recorded against the background of defense expenditures.
At the same time, the growth of federal spending is currently facing risks. In this context, it is worth mentioning that Donald Trump’s agenda aims at programs he is pledged to eliminate.
In the fourth quarter of 2024, the growth of the United States economy became an objective fact, but still, this process faced obstacles, the main of which were inventories. The mentioned circumstance subtracted an increase in the specified indicator by almost a full percentage point, which is the most since early 2023.
Most experts interviewed by the media forecast that the United States economic system will show more moderate growth this year. The average projection predicts that US GDP will increase by 2.2% in 2025.
Experts interviewed by the media also forecast that the central bank of the United States will be moderately cutting interest rates this year.
At the same time, the assessment of the prospects of the US economy in 2025 faces significant uncertainty. In the relevant context, it is worth mentioning Donald Trump’s intention to tighten Washington’s tariff policy. It is expected that the relevant measures, which may come into force next month, will affect both geopolitical opponents and partners of the United States. According to many experts, the tightening of tariff policy regarding imported goods may trigger an acceleration of inflation in the United States. In this case, many economic systems are likely to face sensitive negative consequences. The largest and most stable of these systems will have better prospects for overcoming the mentioned challenges. In the context of the relevant assumption, the United States has favorable prospects, but it is still very likely that damage will be caused to the country’s economy. The tightening of tariff policy will become a sensitive factor affecting Beijing, Washington’s main geopolitical rival. Currently, exports are actually the main driving force behind China’s economic growth.
At the same time, proponents of tightening Washington’s tariff policy argue that the implementation of appropriate measures will be a factor contributing to stimulating investment in the manufacturing industry and encouraging domestic production. According to Donald Trump, the materialization of the mentioned decision will help bring factory jobs home and reduce the trade deficit.
It is worth mentioning that during his first presidential term, which lasted from 2017 to 2021, Mr. Trump tightened Washington’s trade policy. As a result of the implementation of the relevant decision, a decrease in the level of employment in factories was recorded. Also, the mentioned tightening of Washington’s tariff policy was the reason for the contracting of industrial production. Against this background, the United States faced a slowdown in economic growth. US central bank officials were concerned about the mentioned realities. This is evidenced by the released transcripts of the meetings of the United States financial regulator on monetary policy in 2019.
The expected implementation of Donald Trump’s tariff threat worries the whole world. Analysts predict that these measures will provoke an increase in tension in the global trade space. Also, the materialization of the corresponding scenario will worsen the difficult geopolitical situation within the framework of which the practice of interaction between world capitals continues to deteriorate. Moreover, the global economy is currently not in the best condition. An additional negative factor in the form of tougher tariffs from the US will complicate the already negative state of affairs.
The economic system of the United States currently outperforms similar systems of other countries. In this case, for Washington, a kind of auxiliary factor is a strong labor market, which is characterized by wage growth, which is faster than price increases. The United States also has a low unemployment rate. This is a favorable factor for the economy. The mentioned factor helped support consumer spending and economic activity in general.
Data released by the US Labor Department on Thursday shows that applications for employment benefits dropped the most in six weeks.
The United States economy continues to face challenges, but its growth is steady and without any cause for doubt.
