The economy slowed late last year but still turned in a solid performance as another burst of consumer spending was offset by a drop in business investment and stockpiling.
The nation’s gross domestic product, the value of all goods and services produced in the U.S., expanded at a seasonally adjusted annual rate of 2.3% in the October-to-December period, the Commerce Department said Wednesday. That’s down from a 3.1% increase in the third quarter and an average 2.6% pace the first nine months of the year.
Economists surveyed by Bloomberg had forecast a 2.6% increase in output.
How much did the economy grow last year?
For all of 2024, the economy grew 2.8%, down just slightly from a 2.9% clip the previous year.
The report paints a generally positive picture of the economy in the final months of former President Joe Biden’s administration. But it also may reflect the business uncertainty generated by then-incoming President Trump’s tariff and immigration plans, economists said.
Is consumer spending up or down?
The good news: The American consumer is still driving the economy. Consumer spending increased a robust 4.2% at an annual rate following a 3.7% rise in the third quarter. Consumption makes up about 70% of economic activity.
Since May 2023, average income gains have outpaced inflation, giving workers more buying power. And a stock market rally and rising home values have boosted the wealth of higher-income households, prompting them to spend more, according to Moody's Analytics.
Since more affluent Americans account for a disproportionate share of spending, their purchases have more than made up for the struggles of low- and middle-income households, Moody's said.
Lower-income consumers have grappled with high inflation and interest rates, helping drive total U.S. credit card debt to a record high and delinquencies to historically elevated levels. Those financial strains could take a bigger toll on the economy this year, said economist Ryan Sweet of Oxford Economics.
Also lifting consumption last fall were two Southeast hurricanes that forced area residents to replace damaged vehicles, bolstering auto purchases, Goldman Sachs wrote in a research note.
Has the Fed reduced interest rates?
A healthy economy could keep the Federal Reserve's interest rate cutting campaign on pause for longer.
Wednesday, the Federal Reserve paused its flurry of interest rate cuts as it awaits details on Trump’s planned tariffs and immigration crackdown and assesses whether an inflation slowdown will resume after stalling recently. Both of Trump’s key policies could reignite price increases, forcing the Fed to keep rates higher for longer, economists say.