Another Year of Robust Economic Growth in the Books
The US economy grew 2.5% over the past year, according to new Commerce Department figures released Thursday. This marks another year of strong growth, leaving President Donald Trump with a solid economy as he begins his second term.
The robust labor market and strong consumer spending drove the growth, with Americans’ spending accounting for about 70% of the US economy. Business investment also fueled growth, particularly in the early months of 2024.
The economy expanded at an annualized rate of 2.3% in the fourth quarter, slightly below economists’ expectations of 2.4%. The figures are adjusted for seasonal swings and inflation.
The strong numbers come as the Federal Reserve has held off on further rate cuts, with Chairman Jerome Powell noting that the economy remains in a good place, with a steady labor market and inflation on track to slow further. However, Powell also warned that the strong numbers are masking some economic pain under the surface.
As Trump begins his second term, he has promised major policy changes, including mass deportations, stiff tariffs, and making his 2017 tax cuts permanent. These policies could impact economic growth and pose risks, such as stoking inflation and limiting the Federal Reserve’s ability to cut rates.
Consumers stepped up their spending in the final quarter of 2024, boosting the overall economy. Spending on goods and services, particularly durable goods, accelerated. This may have been driven by shoppers trying to buy ahead of potential tariffs and lower interest rates.
However, business spending was a red flag, contracting at an annual rate of 2.2% in the fourth quarter. This may be a reaction to economic uncertainty surrounding the new presidential administration.
While the economy is expected to continue growing in 2025, one concern is that Trump’s policies could lead to inflation, which could limit economic growth and keep the Federal Reserve from cutting rates.