The U.S. economy expanded at an annual rate of 2.3% in the fourth quarter of 2024, according to the advance estimate from the U.S. Bureau of Economic Analysis. This growth decelerated from the 3.1% increase observed in the third quarter.
The fourth-quarter GDP growth was primarily driven by increases in consumer spending and government expenditures. Personal consumption expenditures (PCE) rose, reflecting sustained consumer demand. Government spending also contributed positively to the GDP, with notable increases in defense expenditures.
Despite these positive indicators, inflation remains a concern. The price index for gross domestic purchases increased by 2.2% in the fourth quarter, up from a 1.9% rise in the previous quarter. The personal consumption expenditures (PCE) price index, a key measure of inflation, increased by 2.3%, compared to a 1.5% rise in the third quarter. Excluding food and energy prices, the core PCE price index increased by 2.5%, following a 2.2% increase in the prior quarter.
The labor market remained strong, with the unemployment rate holding steady at 4.1% in December 2024. However, consumer confidence dipped for the second consecutive month in January 2025, with the Conference Board’s index falling to 104.1 from 109.5 in December, indicating potential concerns about future economic conditions.
Analysts remain cautiously optimistic, noting that while the economy demonstrates resilience, challenges such as persistent inflation and potential impacts from rising interest rates warrant close monitoring. The Federal Reserve is expected to maintain the current benchmark borrowing rate in its upcoming policy meeting, as officials assess the balance between supporting economic growth and managing inflationary pressures.