US Economy Ended 2024 on a Stronger Footing Than Initially Estimated

Real Gross Domestic Product (GDP) expanded at a 2.4% annualized rate in the fourth quarter, revised slightly up from prior estimates of 2.3%, from robust consumer activity.

The US economy finished 2024 on a somewhat stronger footing than initially assessed, government figures showed on Wednesday, though questions about momentum persist heading into 2025 amid a shift in administration and heightened trade friction.

Real Gross Domestic Product (GDP) expanded at a 2.4% annualized rate in the fourth quarter, revised slightly up from prior estimates of 2.3%, the Commerce Department said. This was largely driven by strong consumer activity during the holiday season.

This strong GDP growth in Q4 2024 was largely driven by a strong 4% rise in consumer spending during the holiday season, alongside increased government expenditures.

Inflation, however, remained elevated. The Personal Consumption Expenditures (PCE) price index - the Federal Reserve’s preferred inflation gauge - rose at an annual rate of 2.4%, exceeding the Fed’s 2% target.

Solid 2024 Growth Tempered by Falling Business Investment

For the entire 2024 year, the economy grew by 2.8%, a slight deceleration from the 2.9% growth observed in 2023.

But despite the overall economic expansion, business investment declined. Corporate spending on equipment dropped sharply by 8.7% during the quarter, suggesting businesses grew increasingly cautious about large capital expenditures late last year.

The decline in business investment was steeper than the initially estimated 7.6% decrease.

2025 Outlook: Trump Policies Add Layer of Uncertainty

Now, the question remains if the US will be able to sustain this growth with Donald Trump’s trade policies, federal workforce reductions, and even the pledges of widespread immigrant deportations.

The tariffs especially could increase inflation and disrupt investment strategies, adding another complex layer to the current economic landscape. Although, at least for the crypto investors, tariffs shouldn’t matter, according to Arthur Hayes.

Inflation, Fed Decisions, Trade Policy Key for 2025 Path

While this is good news for the US economy, a lot has happened since Q4 2024. The current US trade policies can impact the US economy the most, in addition to having a global impact. In case the tariffs escalate, they could spark retaliatory measures, leading to slower economic growth.

Then, the potential geopolitical tensions might have an influence as well. Ongoing conflicts or supply chain disruptions may increase costs and affect economic stability.

All things considered, going by the report, the US economy outperformed expectations in late 2024, but uncertainty remains for 2025. Inflation trends, Federal Reserve decisions, and the impact of trade policies will play a hugely important role in shaping the economic landscape.

If inflation continues to ease, we could see rate cuts that boost economic growth. On the other hand, if trade tensions rise or borrowing costs remain high, a slowdown may be on the horizon.

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