Solid growth for US fourth quarter, but outlook cloudy for 2025 under new administration

The American economy grew at a solid 2.3 per cent annual rate the last three months of 2024, supported by a burst of year-end consumer spending, the government said, leaving unchanged its initial estimate of fourth-quarter growth.

The outlook for 2025 is cloudier as US President Donald Trump pursues trade wars, cutbacks in the federal workforce and mass deportations.

The US Commerce Department reported Thursday that growth in gross domestic product — the nation’s output of goods and services — decelerated from a 3.1 per cent pace in July-September 2024.

For all of last year, the economy grew 2.8 per cent, compared with 2.9 per cent in 2023.

Consumer spending advanced at a 4.2 per cent pace from October through December. Business investment fell in the fourth quarter, pushed lower by a 9 per cent drop in equipment spending. A drop in business inventories shaved 0.81 percentage points off October-December growth.

But a category within the GDP data that measures the economy’s underlying strength rose at a healthy 3 per cent annual rate from July through September, slipping from 3.4 per cent in the third quarter and down slightly from the government’s initial estimate. This category includes consumer spending and private investment but excludes volatile items like exports, inventories and government spending.

Wednesday’s report also showed that inflationary pressure persists in the economy. The Federal Reserve’s favoured inflation gauge — called the personal consumption expenditures index, or PCE — rose at a 2.4 per cent annual pace last quarter, up from 1.5 per cent in the third quarter and above the Fed’s 2 per cent target. Excluding volatile food and energy prices, so-called core PCE inflation was 2.7 per cent, up from 2.2 per cent in the July-September quarter. Both those inflation numbers were slightly higher than they’d been in the Commerce Department’s initial report.

The report shows that Trump inherited a healthy economy when he took office last month. Growth has now topped a decent 2.0 per cent for nine of the last 10 quarters. Unemployment is low at 4.0 per cent, and inflation has come down from the highs it hit in mid-2022.

After lowering its benchmark interest rate three times in the last four months of 2024, the US Federal Reserve left it unchanged in January and appears to be in no hurry to start cutting again. Progress against inflation has stalled in recent months.

Trump’s plans to impose tax imports at a scale not seen since the 1930s risks raising prices and intensifying inflationary pressure. Deporting millions of immigrants working in the country illegally, as Trump has promised, could also create labour shortages that push up wages and feed inflation.

The US Labor Department reported Thursday that the number of Americans filing for unemployment benefits rose unexpectedly last week to the highest level in three months. Some economists expect those numbers to tick higher as layoffs of federal workers ordered Elon Musk’s Department of Government Efficiency start to show up in the data.

High Frequency Economics already expects January-March GDP growth to fall below 1 per cent, lower if Trump goes ahead with plans to slap 25 per cent taxes on goods from Canada and Mexico. On Thursday, Trump vowed to do just that early next week.

Thursday’s GDP report was the second of three Commerce Department looks at fourth-quarter economic growth. The final estimate comes out March 27.

AP