Consumers underpinned the economy’s strength in 2024. - Scott Olson/Getty Images
The U.S. economy grew last year at a solid clip, boosted by American consumers who just kept spending.
U.S. gross domestic product—the value of all goods and services produced across the economy—grew 2.5% last year, the Commerce Department said Thursday. That was slower than 3.2% in 2023 but still a sturdy pace.
Economic issues loomed large in 2024, when data largely showed a strong economy but many everyday Americans disagreed. Voters, angry about high prices, booted Democrats out of the White House. But inflation cooled, and the job market remained strong.
The year-over-year GDP growth reflects the fourth-quarter change from a year earlier. Economists surveyed by The Wall Street Journal and the Federal Reserve use that metric for forecasts. The Fed expects the economy to grow 2.1% this year and 1.8% in the longer run.
By a separate measure of growth, the nation’s total output for 2024 grew 2.8% last year, down only slightly from 2.9% in 2023.
The economy is entering an uncertain 2025. Economists tend to believe that the Trump administration’s proposals on tariffs and deportations will hurt growth and stoke inflation. Trump advisers have said that plans to cut regulation and boost energy production will offset the effects of higher goods prices.
But for 2024, anyway, U.S. consumers showed up.
Consumers were “firing on all cylinders” and “that momentum still looks as though it’s going to continue through to the early part of this year at least,” said James Knightley, chief international economist at ING Financial Markets. “That’s probably going to keep the Fed wary about easing monetary policy too far, too fast.”
The economy did finish 2024 on a slightly weaker footing. GDP rose at a 2.3% annual rate in the October-to-December period, after adjusting for seasonality and inflation.
That was down from 3.1% in the third quarter, and below the 2.5% rate economists had expected.
For the fourth quarter:
*Consumer spending, which accounts for more than two-thirds of the economy, rose at a 4.2% pace, the fastest since early 2023. American households spent on goods like vehicles and clothing as well as services like medical care and transportation.
The solid labor market last year helped power Americans’ spending. - Jordan Vonderhaar for WSJ
*The housing sector improved after two consecutive quarters of decline. Residential investment rose at a 5.3% rate.
*Final sales to private domestic purchasers, a measure of consumer and business spending that gauges underlying demand in the economy, rose at a 3.2% annual pace, little changed from the third quarter and a sign that economic fundamentals remain strong.
Still, there were some weak spots in the fourth quarter:
*Businesses spent less on restocking. Instead, they drew down inventories already on their shelves to meet strong consumer demand. That subtracted nearly a percentage point from the quarter’s overall GDP growth rate.
Economists said that is unlikely to be repeated in the first quarter, as companies are more likely to import more goods to get ahead of expected tariffs by the Trump administration.
*Business investment also declined for the first time in more than three years, which economists said was likely due to a nearly eight-week strike at Boeing that ended in November.
Inflation continued to come down over the course of 2024, but on a bumpy path. The Fed’s favored measure of inflation—the personal-consumption expenditures price index excluding food and energy—rose at a 2.5% seasonally adjusted annual rate in the fourth quarter, compared with 2.2% in the third. The Fed targets 2% year-over-year inflation.
Looking ahead, many business executives are voicing optimism.
“The U.S. economy has performed very well and remains strong, and lower inflation and unemployment position the economy well into 2025,” Charlie Scharf, CEO of Wells Fargo, said during a Jan. 15 earnings call. He added that the Trump administration “has signaled a more business-friendly approach to policies and regulation, which should benefit the economy and our clients.”
But it’s not clear that consumers will feel the same way throughout 2025. Though inflation has slowed, prices are still much higher than they were before the pandemic. Americans are spending more on credit cards and carrying bigger balances month to month. Measures of consumer confidence dipped in January, with people fretting about the job market and future inflation.
Starbucks this week said business continued to slide at cafes and its profit fell in the most recent quarter. Customers have grown frustrated with Starbucks’s costs, and its U.S. transactions last year sank by some of the steepest levels since 2020, when Covid-19 broadsided the restaurant industry.
“There are still people at the lower end of the income spectrum struggling with higher prices and interest rates,” said U.S. Bank chief economist Beth Ann Bovino.
“But on average, most households remain resilient, supported by a healthy jobs market,” she said, and that “signals an economy that can withstand fewer rate cuts without falling into recession.”
