Washington (AFP) – The US economy expanded at a solid clip in 2024, helped by consumer and government spending, official data showed Thursday, signaling its resilience as President Donald Trump takes over the reins. Trump won a commanding victory in last November’s election on the back of public dissatisfaction over cost-of-living pressures, even as inflation has cooled while the job gains continued. In the October to December period, the world’s biggest economy grew at an annual rate of 2.3 percent, the Commerce Department said, slowing from the 3.1 percent rate in July-September. Trump took office January 20, inheriting robust growth as his term kicks off. The latest figure was in line with a consensus forecast by Briefing.com. For 2024, GDP rose 2.8 percent from the annual level a year prior.
Consumer spending, investment, and government spending were among the drivers behind last year’s growth, according to Commerce Department data. The US economy has broadly held up in the face of high interest rates, helped by a resilient labor market with low unemployment and still-growing wages. This has allowed consumers to keep spending, even as they drew down on savings accumulated during the Covid-19 pandemic.
“Consumer spending on both goods and services continued to drive a substantial portion of growth,” said Joel Kan, deputy chief economist at the Mortgage Bankers Association. The latest data indicate the economy and job market remain strong, consistent with the US central bank’s view, he noted. Wages have continued to outpace inflation, while recent hurricanes triggered “replacement demand” for items like vehicles, said KPMG chief economist Diane Swonk in a note. Another factor was “massive wealth effects from sharp increases in equity and home values,” boosting spending in particular among higher-income households, added Nationwide chief economist Kathy Bostjancic.
But Swonk warned that “the economy continues to look better on paper than it feels to most Americans.” The overall gains mask a “souring mood among consumers,” she believes, citing “inequality and the unease beneath the surface due to the high level of prices of the basics of food and shelter.” Swonk earlier told AFP that government spending could also have been stronger than expected, as the outgoing administration of former president Joe Biden pushed funding out the door in its final months. This included defense spending for Ukraine.
One drag on growth, however, was that businesses invested less in inventories than anticipated, according to Robert Frick, corporate economist with the Navy Federal Credit Union. This could be a response to economic uncertainty surrounding the new presidential administration, he noted. The sequencing and magnitude of policies on tariffs and immigration remains to be seen, Swonk said, expecting that their effects will also take time to materialize. She expects growth to cool in 2025 and that tariffs will increase, although the hikes will not necessarily translate into full-blown trade wars with all countries.
Matthew Martin, senior US economist at Oxford Economics, told AFP that even though Trump has used “inflammatory words” on trade policy, these appear to be more of “a negotiation tactic.” “The question is how far does this go,” said Dan North, senior economist for Allianz Trade North America, referring to the scale of tariffs and retaliation from other US trading partners. “Trade wars tend to be losers for everybody involved,” he told AFP.
Looking ahead, analysts anticipate January’s employment figures will take a hit from devastating wildfires in California. Brendan Boyle, top Democrat on the House Budget Committee, called the fourth quarter growth figure “undeniable proof” that policies under Biden have proven effective.
© 2024 AFP
