The U.S. economy registered a smaller-than-expected rate of growth in the fourth quarter, reflecting a continuation of gains driven by consumer and government spending.
According to the Bureau of Economic Analysis, inflation-adjusted gross domestic product (GDP), a gauge of all goods and services produced, for the period from October to December 2024 advanced at an annualized rate of 2.3 percent.
Real (inflation-adjusted) consumer spending surged by 4.2 percent from 3.7 percent in the third quarter, which accounted for much of the previous quarter’s expansion.
Government outlays increased by 2.5 percent, representing a fifth of the final reading. Federal spending increased by 3.2 percent while state and local spending advanced by 2 percent.
Harris Financial Group’s managing partner, Jamie Cox, told The Epoch Times, “Headline growth appeared weak; however, the consumer is powering forward in a big way.”
The U.S. economy will likely outpace the rest of the world, Cox added.
Prices were elevated in the home stretch of 2024, consistent with a wide array of inflation reports since September 2024.
Before the fourth-quarter GDP data were released, market observers were concerned that the U.S. goods trade gap would weigh on growth.
Imports surged by 3.9 percent to $289.6 billion as companies prepared for President Donald Trump’s potential tariff plans. Exports tumbled 4.5 percent to $167.5 billion due to decreased shipments of consumer goods, industrial supplies, and capital goods.
Additionally, the November 2024 figure was also adjusted higher to $103.5 billion.
Personal consumption expenditure (PCE) price inflation climbed to 2.3 percent, up from 1.5 percent. Core PCE price inflation, which excludes the volatile energy and food components, edged up to 2.5 percent from 2.2 percent.
Growth in the GDP Price Index—a measure of the prices of goods and services produced in the United States—rose to a smaller-than-expected rate of 2.2 percent.
Overall, these numbers highlight the economy’s momentum in concluding 2024 and what the new administration will inherit.
“The economy still registered solid real GDP growth last year because of robust growth of the labor force on the back of rising labor force participation and immigration, which alleviated the pandemic-era labor supply shortages, and because of aggressive fiscal stimulus to fund the Biden administration’s industrial policy priorities,” Bill Adams, chief economist for Comerica Bank, said in a note emailed to The Epoch Times.
Economists anticipate more of the same in the first three months of 2025.
Charting the Economic Path
Because financial markets are forward-looking, investors applied little weight to the backward-looking GDP estimate.Traders have been putting more stock in the new administration’s economic agenda, particularly on the trade front.
Although the president has yet to outline his trade policy in detail, he has threatened to impose tariffs on Canada, Mexico, and China as early as Feb. 1. Trump also threatened tariffs on Colombia and Taiwan.
“We are going to look at pharmaceuticals, drugs, we are going to look at chips, semiconductors, and we are going to look at steel and some other industries, and you are going to see things happening,” Trump said at a gathering of House Republicans on Jan. 27.
“The only way to get out of this is to build your plant. If you want to stop paying taxes or tariffs, build here in America.”
Economists fear that these policies could affect growth and revive inflationary pressures.
Erica York, vice president of federal tax policy at the Tax Foundation, forecasts that 25 percent tariffs on Canada and Mexico and 10 percent levies on China would reduce economic output by 0.4 percent, eliminate thousands of full-time jobs, and raise taxes by $1.2 trillion between 2025 and 2034.
So far, the president has signed a presidential memorandum ordering departments and agencies to study U.S. trade relationships and other currencies.
Changes in trade policy are something the Federal Reserve is going to watch, says Lon Erickson, portfolio manager at Thornburg Investment Management.
“The new administration has just taken over and there’s been a flurry of executive orders, including several on tariffs and immigration,” Erickson said in a note emailed to The Epoch Times. “How these and other policy decisions impact the economy will be watched closely by the Fed and investors.”
Speaking to reporters at the January post-meeting press conference, Federal Reserve Chair Jerome Powell stated there is a “very, very wide” range of possibilities for tariff effects.
“We don’t know for how long or how much, what countries. We don’t know about retaliation. We don’t know how it’s going to transmit through the economy to consumers. That really does remain to be seen,” he said.
“The best we can do is what we’ve done, which is study up on this and look at the historical experience, read the literature, and think about the factors that might matter. And then we’ll just have to see how it goes.”
The Federal Reserve left interest rates unchanged on Jan. 29, keeping the benchmark federal funds rate at a range of 4.25 percent to 4.5 percent.
The meeting’s outcome triggered a fierce response from President Trump, who lambasted the Fed for failing “to stop the problem they created with inflation.”
