(Bloomberg) -- Over the last few years, the US economy has consistently defied expectations for a slowdown, and 2024 was no different.
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Despite uncertainty around a presidential election, elevated interest rates and a cooling labor market, economic growth remained solid this year. The US is set to be the top performer among Group of Seven countries, according to International Monetary Fund projections.
Still, the economy was far from perfect. Inflation proved slow to recede, leading the Federal Reserve to embrace a higher-for-longer approach to interest rates. The housing and manufacturing sectors continued to struggle under the weight of high borrowing costs, and consumers with credit-card debt, mortgages and other loans saw rising delinquency rates.
Here’s a closer look at how the US economy performed in this year:
Consumers Held Up...
The answer to why the economy exceeded expectations in 2024 is the American consumer. Even as hiring slowed, wage growth continued to outpace inflation and household wealth reached new records, supporting an ongoing expansion in household spending.
Bloomberg Economics forecasters estimate household outlays advanced 2.8% in 2024 — faster than in 2023 and nearly twice their projection at the start of the year.
...But Cracks Emerged...
Though consumers are still holding up, some of the main drivers of that remarkable resilience lost steam this year. Americans have mostly exhausted their pandemic savings and have generally been putting aside a smaller share of their incomes each month.
Consumer spending has also been increasingly driven by higher earners who are enjoying a so-called wealth effect from gains in housing prices and the stock market. That’s taking place while many lower-income consumers are relying on credit cards and other loans to support their spending, with some showing signs of financial strain like higher delinquency rates.
...Including in the Labor Market
The main support for consumer spending also began flashing warning signs in 2024. Hiring decelerated throughout the year and the unemployment rate edged higher, triggering a popular recession indicator. Moreover, the number of job openings declined and the unemployed are increasingly having a harder time finding new jobs.
Fed officials began cutting rates in September amid concerns that the job market could be approaching a dangerous tipping point, though they’ve become more optimistic in the final months of the year as the unemployment rate has stabilized around levels that remain low by historical standards. Wage growth, meanwhile, remains steady around 4%, which should keep supporting household finances.