U.S. gross domestic product grew by 2.3% in the fourth quarter of 2024 after expanding by 3.1% in the third quarter. Consumption, net exports, and government spending contributed positively to Q4 GDP growth, while investment detracted over a full percentage point primarily due to a decline in inventories. Despite expectations of solid U.S. economic growth in 2025, the Federal Reserve is likely to cut interest rates further before the end of the year.
GDP Growth Slowed In The Fourth Quarter Of 2024
The economy grew by 2.3% in Q4 2024, according to the latest Advance GDP report from the U.S. Bureau of Economic Analysis. This was the eleventh consecutive quarterly expansion in U.S. real GDP growth.
At 2.3%, fourth-quarter growth was solid and close to consensus expectations, although the pace was slower than the 3.1% real GDP growth rate in the third quarter of 2024.
This report provides further hope for a no-landing or soft-landing U.S. economic scenario despite relatively high interest rates. The ongoing strength of the labor market remains a significant factor supporting U.S. GDP growth.
Mixed Contributions To Fourth Quarter GDP
Contributions to Q4 2024 GDP were mixed. Consumption, net exports, and government spending added to GDP, while investment detracted from the Q4 figure. The 2.3% real GDP growth in the fourth quarter is a sum of the changes in these four series.
On the upside, growth occurred across consumption, government spending, and net exports. Consumption added 2.82 percentage points to GDP, supported by solid services consumption, which added 1.45 of those percentage points. Goods consumption, which added 1.37 of consumption’s 2.82 percentage points, was fueled by solid retail sales growth.
Meanwhile, government spending added 0.42 percentage points, and net exports added 0.04 percentage points.
On the downside, inventories fell in the latest quarter, deducting 1.03 percentage points from GDP. A sharp decline in inventories was responsible for deducting 0.93 of those percentage points, while fixed investment declines were responsible for deducting only 0.1 percentage points.
Despite the negative impact of inventories, overall GDP growth was solid in the fourth quarter. Moreover, key drivers of future U.S. economic growth are currently positive.
Future GDP Expectations
Multiple factors support a positive outlook for U.S. GDP in 2025, including low unemployment, low debt-to-income ratios, low debt delinquencies, and solid consumption. The IMF January 2025 forecasts reflect that U.S. GDP will grow by 2.7% in 2025, making the United States the fastest-growing advanced economy in the world this year.
One gauge of future U.S. real GDP growth is the Atlanta Fed’s GDPNow series, which is an adaptive economic model based on the most recently available data for a given quarter. Ahead of the Q4 2024 GDP release, the GDPNow figure reflected expectations of 2.3% for Q4 GDP. This series has become a critical way to gauge upcoming GDP reports, and the latest report further supports its track record.
Policy Expectations Following The Q4 2024 GDP Report
U.S. growth has been solid and among the strongest of any advanced economy in the world. Plus, consumer inflation remains elevated. This combination of factors is likely to prevent the Fed from cutting interest rates on March 19.
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