U.S. Economy Grows in 2024, But Challenges Loom Ahead

The U.S. economy closed out 2024 on a solid note, expanding at a robust 2.4% annual rate in the final three months of the year, according to a government report released on Thursday. This figure, a slight upward revision from earlier estimates, was fueled by a late surge in consumer spending. However, as the world’s largest economy strides into 2025, questions loom about its ability to maintain this momentum amid escalating trade tensions, ambitious policy shifts, and rising inflation.

The fourth-quarter growth marked a slowdown from the 3.1% pace recorded between July and September 2024, the Commerce Department noted. For the full year, the economy grew 2.8%, a modest dip from 2023’s 2.9%. Consumer spending, the backbone of this expansion, accelerated to a 4% pace—up from 3.7% in the prior quarter. Yet, this bright spot was offset by a troubling decline in business investment, including an 8.7% plunge in equipment spending. A reduction in business inventories further dragged growth down by nearly a full percentage point.

Beneath the headline numbers, a key measure of the economy’s core strength—stripping out volatile elements like exports and government spending—grew at a 2.9% rate in the fourth quarter. While still healthy, this figure slipped from the previous quarter’s 3.4%, hinting at a subtle loss of vigor. Meanwhile, inflationary pressures intensified. The Federal Reserve’s preferred gauge, the personal consumption expenditures price index, climbed to a 2.4% annual rate, surpassing the central bank’s 2% target and rising sharply from 1.5% in the prior quarter. Core inflation, excluding food and energy, hit 2.6%, up from 2.2%, signaling that price pressures were far from tamed by year’s end.

Looking ahead, the economic horizon is growing murkier. Recent policy moves, including hefty new taxes on imports like a 25% levy on foreign automobiles, threaten to stoke inflation further while unsettling business investment. Analysts warn that this cocktail of trade barriers, policy uncertainty, and tightening financial conditions could sap growth in early 2025. The fourth quarter, one economist noted, captured the economy “before a wave of trade-related uncertainty and additional tariffs took hold.” Already, signs of strain are emerging: consumer confidence is tumbling amid fears of rising costs, and major retailers are scaling back forecasts as shoppers tighten their belts.

Thursday’s report, the government’s final take on 2024’s fourth-quarter performance, paints a picture of resilience tempered by vulnerability. The U.S. economy has proven its mettle, but with bold policy gambits reshaping the landscape, its next chapter remains unwritten—and potentially unsteady.