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The United States economy experienced significant growth of 2.4% in the final quarter of 2024. This growth exceeded expectations and expert predictions.
Corporate after-tax earnings rose by 5.9% during the fourth quarter of 2024, the largest quarterly growth since 2021. Firms were making more revenue and higher margins, with non-financial corporate profits at 15.9% of gross value added.
The fourth-quarter GDP numbers “demonstrate that the economy is heading into this year with great momentum and profitability and is resilient to some level of policy uncertainty,” Wells Fargo economists Shannon Grein and Tim Quinlan said. But they fretted over how businesses would respond if trade conditions changed and uncertainty over where the economy is headed.
That level of profitability is far above historical averages, which suggests that companies may be able to swallow persistent cost increases rather than pass them on to consumers. That could help keep inflation under control even as trade policies change.
Consumer spending slows as businesses stock up
Consumer spending, which accounts for nearly two-thirds of the economy, increased at a revised 4% pace in the fourth quarter, a bit below prior estimates. And businesses raced to import goods ahead of anticipated tariffs, which helped fuel a jump in imports.
The trade gap stayed elevated in February but shrank slightly from a record in January. Some economists caution that this surge of imports will lead to a slowdown in GDP growth in early 2025.
Another key economic measure, gross domestic income (GDI), rose 4.5% in the fourth quarter from 1.4% in the third quarter. While GDP measures how much people and businesses spend on goods and services, GDI measures the income earned and the costs involved in producing them. Those two measures grew 3.5% on average last quarter, the fastest pace in a year.
A report on Thursday showed that new unemployment claims held steady at 224,000 last week, meaning that the number of people applying for jobless benefits changed a bit.
Uncertain trade policies shape 2025 economic outlook
Economic growth was robust in the fourth quarter of 2024 but is expected to slow in the months ahead. Most economists are cautious about the future, pointing to shifting trade policies and business uncertainty.
Even two of the most powerful investment banks in the world, Goldman Sachs and Morgan Stanley, have already cut back their forecasts, citing the uncertain global trade environment as a potential drag on economic growth. In an age of surging tariffs, new trade deals, and the potential creation of additional policies, businesses are increasingly reluctant to invest and expand as they work through the unclear swamps of an uncertain market environment.
These concerns have led to an update of the Federal Reserveʼs economic outlook and a recognition of the risks to growth. Some economists now expect G.D.P. to reduce in the first three months of 2025 as businesses and consumers dial back spending in the face of an uncertain economic outlook.
A rise in imports in the early months of the year, partly propelled by companies stockpiling goods ahead of new tariffs, could also depress growth. If companies cut back on production or lower spending because of higher costs, that could slash more water on economic activity.
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