US economy grows less than expected but households remain resilient
The US economy grew at a slightly weaker pace than expected at the end of last year, new figures show, but analysts said underlying momentum remained strong.
Figures from the Bureau of Economic Analysis (BEA) showed that the world’s largest economy grew at an annualised rate of 2.3 per cent in the final three months of the 2024.
This was weaker than the 2.6 per cent which had been pencilled in by analysts, and down from the 3.1 per cent recorded in the third quarter.
“The robust US economy couldn’t live up to best hopes for growth in Q4, coming in a fair bit lower than expected,” Neil Birrell, chief investment officer at Premier Miton Investors said.
The BEA said that the slowdown in growth compared to the previous quarter reflected lower investment and weaker imports.
However, government spending remained resilient while consumer spending accelerated compared to the previous quarter due to higher spending on healthcare and motor vehicles.
“Economic growth became increasingly reliant on households last year, with the 4.2 per cent surge in consumers’ spending in Q4 driving essentially all of the overall increase in GDP,” Samuel Tombs, chief US economist at Pantheon Macroeconomics said.
Paul Ashworth, chief North America economist at Capital Economics, said “underlying economic growth remains solid”.
The figures confirm that the US economy grew 2.8 per cent during the year, far outstripping expectations earlier in the year and only a slight step down from the 2.9 per cent recorded in 2023.
Projections from the International Monetary Fund (IMF) suggest that the US economy will grow 1.9 per cent in 2025, faster than any other G7 economy.
The continued resilience of the economy prompted the US Federal Reserve to pause its rate cutting cycle yesterday, particularly while they assess the potential inflationary impact of President Trump’s policies.
Fed Chair Jerome Powell said “there was no need to hurry” on rate cuts due to the strength of the economy.
Many analysts are worried that the combination of tariffs, tax cuts and deportations could reignite inflationary pressures just as they are coming back under control.
Indeed, the figures indicate that inflationary pressures remain elevated in the US.
The core PCE index, a closely watched measure of inflation, rose 2.5 per cent in the quarter, up from 2.2 per cent previously. This was only the second quarterly acceleration since late 2022.