- Q4 GDP growth slows to 2.3% annual rate after 3.1% July-September surge
- Consumer spending jumps 4.2% while business equipment investment drops 9%
- Core inflation hits 2.7% – highest since mid-2022 – despite Fed rate hikes
The US economy showed mixed signals in late 2024 as robust holiday spending collided with tightening monetary policy and early impacts from the new administration’s trade agenda. Revised Commerce Department data confirms the nation’s gross domestic product expanded at a 2.3% annualized rate from October through December, marking the ninth quarterly reading above 2% since 2022. However, economists warn this resilience faces unprecedented pressure from simultaneous inflationary forces and protectionist trade measures.
Beneath the headline numbers, critical divergences emerged. Household expenditures rose at a 4.2% clip – the strongest quarterly performance since 2021’s post-pandemic rebound – as consumers defied high borrowing costs to boost retail and service sector activity. This consumer momentum offset a 9% contraction in business equipment spending and a 0.81 percentage point GDP drag from inventory reductions. The Midwest manufacturing belt illustrates this divide: While Detroit automakers reported record December sales, regional steel producers cut output by 14% amid tariff uncertainty.
Three structural shifts could redefine 2025’s economic trajectory:
- Automation Acceleration: Michigan factories are deploying collaborative robots at twice 2023 rates to offset potential deportation-driven labor shortages
- Nearshoring Surge: Texas border cities report 23% increase in warehouse construction as companies hedge against Mexican trade disruptions
- Federal Tech Contraction: Silicon Valley analysts project 18,000 job losses from Musk’s government efficiency overhaul
Inflationary pressures now present policymakers with a complex dilemma. The Fed’s preferred core PCE index climbed to 2.7% annually despite three late-2024 rate cuts, while worker shortages in construction and healthcare pushed average hourly earnings up 4.8%. Atlanta Fed models suggest proposed tariffs on Canadian auto parts could add 1.2 percentage points to vehicle prices by Q2 2025 – a scenario already prompting Ford to idle its Louisville assembly plant for retooling.
Financial markets responded cautiously to Thursday’s data, with 10-year Treasury yields rising 9 basis points on inflation concerns. Analysts at JPMorgan Chase note that real consumer spending growth now outpaces wage gains by 1.4 percentage points – an unsustainable gap that may force sharper Fed action. As the White House prepares new trade measures, the stage is set for a high-stakes collision between political priorities and economic fundamentals.
