Economic Growth Slows, But Consumers Keep Spending
The US economy’s growth rate slowed down more than expected in the last quarter of 2024, according to the Commerce Department’s latest report. Despite this, consumer spending remained strong, driving the economy forward.
GDP Growth Rate Slows
The gross domestic product (GDP), a measure of the country’s economic activity, grew at an annualized rate of 2.3% in the fourth quarter. This is lower than the 2.5% growth rate economists had predicted, and a slight decrease from the 3.1% growth rate in the previous quarter.
Consumers Keep Spending
Consumer spending, which accounts for about two-thirds of the economy, rose at a robust 4.2% pace. This suggests that Americans are still willing to open their wallets despite the ongoing burden of high prices. Government spending also contributed to the growth, increasing by 3.2%.
Trade and Investment Drag Down Growth
However, trade was a drag on growth, with imports declining by 0.8%. Exports also fell by 0.8%. Additionally, gross private domestic investment slumped by 5.6%, subtracting more than a full percentage point from the GDP growth rate. An easing in inventories also cut nearly 1 percentage point.
Job Market Remains Strong
In other economic news, initial unemployment claims fell sharply to 207,000 for the week ending January 25, beating forecasts. Continuing claims also declined, down 42,000 to 1.86 million.
Federal Reserve Takes a Patient Stance
The Federal Reserve has taken a patient stance on monetary policy, thanks to the economy’s resilience and the relative decline in inflation. Although the Fed cut interest rates by a full percentage point in the last four months of 2024, officials have indicated that aggressive rate cuts are unlikely this year.
Inflation Concerns
Fed officials have expressed concerns about whether the decline in inflation has stalled. The chain-weighted price index, which measures prices and accounts for consumer substitution, increased 2.2% on the quarter, slightly below expectations. However, consumers are dipping into their savings to fund their purchases, with the personal saving rate falling to 4.1%, the lowest level in two years.
Overall, while the economy’s growth rate slowed down, consumer spending remains a bright spot. However, concerns about inflation and the impact of high prices on households remain.
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