US Q4 GDP Growth Slows, but Consumer Spending Surges — Evening Brief – 01.30.25
The Bureau of Economic Analysis’s initial estimate of U.S. GDP showed that the economy grew at an annual rate of 2.3% in the fourth quarter, slowing from the 3.1% growth the previous quarter and falling short of the 2.6% consensus estimate. This brought the quarter-on-quarter 2024 growth rate to 2.5%, down from 3.2% in 2023.
The headline GDP growth was weighed down by volatile components, with inventories subtracting 0.93 percentage points from overall growth. However, consumer spending surged 4.2% in the fourth quarter, marking the first time since late 2021 that spending growth exceeded 3% in consecutive quarters. Personal spending alone contributed 2.82%, accounting for over 100% of the headline figure. Meanwhile, business fixed investment declined by 2.2%, signaling weakness in corporate spending.
Joseph Brusuelas, RSM U.S. chief economist, noted that excluding inventory and trade, overall growth stood at 3.1%, providing a clearer indicator of the economy’s trajectory amid upcoming trade policy uncertainties. He suggested that firms stockpiled inventory in the fourth quarter to preempt expected tariffs this year, a move that may have influenced the headline GDP figure. Brusuelas shared his insights on X.
A major takeaway from the data is that consumer spending, which typically accounts for about 70% of GDP growth, was the only notable strength in the U.S. economy, while most other sectors showed signs of weakness. This highlights the resilience of consumer demand despite nascent signs of an economic slowdown.
Elsewhere, headline PCE prices increased 2.3% in the fourth quarter, up from 1.5% the previous quarter. The core PCE price index rose 2.5%, marking only the second quarterly acceleration since late 2022, signaling a potential uptick in underlying inflation pressures.
For 2024, real GDP grew by 2.8%, slightly below the 2.9% growth in 2023, according to the Commerce Department, while inflation measures showed signs of easing. The price index for gross domestic purchases rose 2.3% in 2024, down from 3.3% in 2023. The PCE price index increased 2.5% for the year, compared to 3.8% in 2023. Core PCE (excluding food and energy) rose 2.8%, a notable decline from 4.1% in 2023.
The GDP figures marked another strong year, with consumer resilience remaining a key driver of growth despite persistent inflation and high borrowing costs. This economic strength supports the Federal Reserve’s cautious stance on future interest rate cuts, as policymakers assess inflationary pressures and overall stability before making adjustments.
The economic outlook for 2025 suggests moderate growth, with GDP projected to slow to 2.2% on average, according to the latest Bloomberg survey. Economists foresee only a few interest-rate cuts by the Federal Reserve, reflecting caution amid persistent inflation concerns. Additionally, the potential rollout of Trump-era policies adds uncertainty to the economic landscape.