Growth experienced a slowdown but remained robust at the close of 2024, positioning the U.S. economy on a stable foundation as it approached a new year and a new presidential administration filled with uncertainty.
According to a report from the Commerce Department released on Thursday, the U.S. gross domestic product, adjusted for inflation, expanded at an annual rate of 2.3% in the fourth quarter of the previous year. This marked a decrease from the 3.1% growth recorded in the third quarter, yet it signified a positive conclusion to a year where the economy consistently surpassed expectations.
Strong consumer spending, supported by low unemployment rates and consistent wage growth, played a crucial role in maintaining economic momentum despite challenges such as elevated interest rates, persistent inflation, and political instability both domestically and internationally. Over the entire year, from the end of 2023 to the end of 2024, GDP rose by 2.5%, significantly exceeding initial forecasts made at the year's outset.
“We concluded the year on a notably strong note,” remarked Diane Swonk, chief economist at KPMG. “It’s remarkable how resilient and robust the economy has proven to be.”
These figures are preliminary and will undergo at least two revisions as additional data becomes available.
The economy began the new year confronted with a fresh array of challenges. The tumultuous onset of President Donald Trump’s second term—characterized by significant shifts in immigration policy, a spending freeze that was initially announced and later reversed, and the potential implementation of steep tariffs as soon as this weekend—has heightened uncertainty for both households and businesses. Economists caution that his trade and immigration proposals could result in accelerated inflation, diminished growth, or a combination of both.
"You possess all the essential elements for sustainable growth, but the critical question is where the economy will stand in a year," remarked Gregory Daco, chief economist at EY-Parthenon. "The danger lies in destabilizing the economy."
Nevertheless, the economy entered 2025 with considerable momentum, primarily driven by consumer spending, which surged at a 4.2% annual rate in the fourth quarter, surpassing forecasts. This consumer confidence has been supported by a robust job market, with after-tax income, adjusted for inflation, rising at a 2.8% annual rate by year-end.
The housing market also exhibited signs of recovery towards the year's close, as a decline in mortgage rates stimulated construction activity. Residential investment, encompassing new home construction and renovations, increased following two consecutive quarters of decline.
However, there are areas of concern. Businesses reduced their investments in new buildings and equipment during the fourth quarter, and exports experienced a downturn. The resurgence in the housing market may be fleeting, as mortgage rates have climbed in recent months, and the existing home market remains stagnant. Additionally, some economists suggest that the robust spending figures may have been partially driven by consumers accelerating purchases to avoid impending tariffs.
Consumer prices accelerated towards the end of the year, complicating the Federal Reserve's task. Policymakers had previously anticipated the need to lower interest rates to support economic growth. However, on Wednesday, the Fed decided to maintain current rates and indicated that any future reductions would require significant justification.
There are indications that elevated interest rates are increasingly impacting low- and moderate-income households, who tend to depend more on credit cards, auto loans, and other credit forms. Recently, there has been a rise in defaults and delinquencies, alongside a decline in consumer sentiment observed in January. Some economists suggest that consumer spending is being sustained primarily by wealthier individuals, who are benefiting from a robust stock market and favorable interest rates on savings.
“Families are facing challenges and feeling discontent with rising prices,” stated Beth Ann Bovino, chief economist at U.S. Bank. “While economists may want to express optimism, that sentiment doesn’t resonate well with shoppers at the mall.”
Despite warnings from economists over the years about the potential for growth to stall, they have often been proven incorrect. The economic momentum observed at the close of 2024 is expected to bolster resilience against any challenges that may arise in 2025.
“We have managed to endure a lot and continue progressing,” Swonk remarked. “While we can analyze various models, their predictive value has been limited.”
The results from the fourth quarter indicate that President Joe Biden oversaw the most rapid average economic growth of any president since Bill Clinton. While this growth is partly attributed to the recovery from the severe pandemic recession, the economic performance during his last two years in office—after the initial surge of reopening—was comparable to that of his recent predecessors and exceeded the growth seen in the early years of the previous Trump administration.
Bharat Ramamurti, a former economic adviser to Biden, contended that the administration should be recognized for its swift recovery from the pandemic and for making significant long-term investments in infrastructure. However, he noted that inflation became a significant political challenge for Biden.
“There has been a robust, equitable, and rapid recovery from COVID, along with many long-term legacy initiatives,” he stated, “but ultimately, he faced political difficulties due to his inability to adequately address cost-of-living concerns.”
