US Economy Defies Expectations in 2024, But Cracks Begin to Show
Despite uncertainty surrounding the presidential election, high interest rates, and a cooling labor market, the US economy demonstrated remarkable resilience in 2024. According to International Monetary Fund projections, the US is poised to outperform other Group of Seven countries.
Consumers: The Driving Force Behind Economic Growth
The American consumer played a crucial role in the economy’s solid performance. Wage growth continued to outpace inflation, and household wealth reached new heights, supporting an ongoing expansion in household spending. Bloomberg Economics forecasters estimate that household outlays advanced 2.8% in 2024, faster than in 2023 and nearly twice their initial projection.
Warning Signs Emerge
However, some key drivers of consumer resilience began to lose steam in 2024. Americans have largely depleted their pandemic savings and are saving a smaller portion of their incomes each month. Furthermore, consumer spending is increasingly driven by higher earners who are benefiting from gains in housing prices and the stock market, while lower-income consumers are relying on credit cards and loans, leading to higher delinquency rates.
Labor Market Concerns
The labor market, a primary support for consumer spending, also showed signs of weakness in 2024. Hiring slowed, and the unemployment rate edged higher, triggering a popular recession indicator. The number of job openings declined, and the unemployed are facing increasing difficulties in finding new jobs. Although wage growth remains steady around 4%, Fed officials are keeping a close eye on the labor market.
Inflation Progress Stalls
The central bank’s progress toward its 2% inflation target has stalled in recent months. The personal consumption expenditures price index excluding food and energy rose 2.8% in November from a year ago. While the Fed lowered rates by a full percentage point this year, Chair Jerome Powell has indicated that more progress is needed on inflation before making additional cuts in 2025.
Housing Market Struggles
The housing market continued to struggle under the weight of higher borrowing costs. Mortgage rates, which fell to a two-year low in September, are approaching 7% again, prompting contractors to offer incentives to lure buyers. While sales have stabilized somewhat this year, they remain below pre-pandemic levels.
Manufacturing Sector Suffers
The manufacturing sector was another casualty of elevated borrowing costs. Investment in new structures was hindered by high rates and weaker demand abroad, leading firms to shed jobs and reduce costs. Durable goods manufacturers subtracted from payrolls in all but one month this year. The sector’s outlook for 2025 is uncertain, with President-elect Donald Trump’s economic agenda potentially pushing up inflation and constraining the labor market.
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