The United States economy expanded at a solid annual pace of 2.40% in the final quarter of 2024, largely driven by a year-end surge in consumer spending, according to the US Bureau of Economic Analysis. Trading Economic reports that this growth was accompanied by a slight improvement in trade dynamics, with exports falling less than initially expected (-0.20% versus -0.50%) and imports declining more sharply than anticipated (-1.90% versus -1.20%). As a result, net trade made a positive contribution of 0.26 percentage points to GDP, compared to 0.12 percentage points in previous estimates.
Government spending also saw a stronger-than-expected increase, rising by 3.10% compared to an earlier forecast of 2.90%. Meanwhile, fixed investment, though still contracting, did so at a slower pace than anticipated, shrinking by 1.10% versus the expected 1.40% decline. Notably, investment in equipment and intellectual property products also experienced declines, though these were less severe than previously feared.
Despite these positive figures, concerns linger about the sustainability of this growth. The US faces considerable risks stemming from President Donald Trump’s economic and political strategies, which include escalating trade wars, purging the federal workforce, and promising mass deportations of undocumented immigrants. Such policy uncertainties are increasingly impacting both the economy and investor sentiment. On Monday, Goldman Sachs raised the probability of a US recession over the next 12 months to 35%, up from 20%, while predicting further rate cuts by the Federal Reserve. This shift is largely attributed to the disruptive effects of the Trump administration’s tariffs, which are roiling global trade and unsettling financial markets.
On a more positive note, a key measure of the economy’s underlying strength—stripping out volatile elements like exports, inventories, and government spending—grew at a healthy 2.90% annual rate in the fourth quarter. Although this was a slight revision downward from the initial estimate of 3.20%, and down from 3.40% in the third quarter, it highlights the resilience of consumer spending and private investment.
However, experts caution that these figures represent the US economy before the full impact of the heightened policy uncertainty, particularly around trade, was felt. Ryan Sweet, Chief US Economist at Oxford Economics, noted that the combination of tariffs, tightening financial conditions, and escalating policy uncertainty is likely to weigh on economic growth in the months ahead as reported by AP News. "The fourth-quarter data reflects the economy before the enormous surge in policy uncertainty, especially trade, took hold," Sweet remarked. "The combination of these factors is now starting to drag on growth as we move further into 2025."
The outlook for the US economy in early 2025 is further clouded by a decline in consumer confidence, driven by concerns about tariffs and inflation. As anxiety over these issues mounts, major retailers are adjusting their expectations for the year ahead. Many are already reporting a pullback in consumer spending, adding to the uncertainty surrounding the US economy's trajectory.

Quarterly changes in US GDP

Bottom Line

The US economy is currently facing uncertainty: in the rearview mirror robust growth has kept consumer and business going, but at present, the policies of the presidency seems to be eating away at consumer and business confidence. Further ahead, the dilemma of twin deficits with no easy solutions in sight. The importance of an exceptionally well diversified strategy with a long-term mindset cannot be overstated in such circumstances.  

Macroeconomics in brief