Growth slowed but remained resilient at the end of 2024, leaving the U.S. economy on solid footing heading into a new year — and a new presidential administration — that is full of uncertainty.
U.S. gross domestic product, adjusted for inflation, grew at a 2.3 percent annual rate in the fourth quarter of last year, the Commerce Department reported on Thursday. That was down from 3.1 percent in the third quarter but nonetheless represented an encouraging end to a year in which the economy again defied expectations.
Robust consumer spending, underpinned by low unemployment and steady wage growth, helped keep the economy on track despite high interest rates, stubborn inflation and political turmoil at home and abroad. For the year as a whole, measured from the end of 2023 to the end of 2024, G.D.P. increased 2.5 percent, far ahead of forecasters’ expectations when the year began.
“We ended on a pretty strong note,” said Diane Swonk, chief economist for the accounting firm KPMG. “It’s stunning how resilient and strong the economy has been.”
The figures are preliminary and will be revised at least twice as more data becomes available.
But the economy entered the new year facing a new set of challenges. The whirlwind start to President Trump’s second term — including sweeping changes to immigration policy, a spending freeze that was announced and then rescinded and steep tariffs that could take effect as early as this weekend — has increased uncertainty for households and businesses. Economists warn that his proposals on trade and immigration, in particular, could lead to faster inflation, slower growth or both.
“You really have all the right ingredients to support sustainable growth, but the question is, where will it be in 12 months’ time?” said Gregory Daco, chief economist for the consulting firm EY-Parthenon. “The risk is you break the economy.”
Still, the economy entered 2025 with significant momentum, led by consumer spending, which grew at a 4.2 percent annual rate in the fourth quarter, ahead of forecasters’ expectations. Consumers have been buoyed by a strong job market: After-tax income, adjusted for inflation, increased at a 2.8 percent annual rate at the end of last year.
The housing market, too, showed signs of life at the end of the year, as a drop in mortgage rates spurred construction activity. Residential investment, which includes new home building and renovation, rose after two straight quarterly declines.
But there are also pockets of weakness. Businesses invested less in new buildings and equipment in the fourth quarter, and exports fell. The rebound in the housing market may prove short-lived: Mortgage rates have risen in recent months, and the market for existing homes remains frozen. And some economists said the strong spending numbers may have been partly the result of consumers moving up purchases to get ahead of tariffs.
At the same time, consumer prices rose more quickly at the end of the year. That has complicated the job facing policymakers at the Federal Reserve, who until recently had been expecting to be cutting interest rates to shore up economic growth. Instead, the Fed on Wednesday held rates steady and signaled that the bar for future cuts will be high.
There are signs that high rates are taking an increasing toll on low- and moderate-income families, who are more likely to rely on credit cards, car loans and other forms of credit. Defaults and delinquencies have crept up recently, and consumer sentiment fell in January. Some economists argue that spending is being propped up by wealthier consumers, who are benefiting from a rising stock market and high rates of interest on savings.
“Households are struggling and frustrated with prices,” said Beth Ann Bovino, chief economist at U.S. Bank. “Economists want to cheer, but that doesn’t sound very good when you talk to people at the mall.”
Still, economists have warned for years that growth is in danger of faltering, only to be proved wrong. And the momentum at the end of 2024 should help the economy withstand whatever threats emerge in 2025.
“We’ve been able to take a lot and keep going,” said Ms. Swonk of KPMG. “We can look at all the models, but the models haven’t been that valuable.”
The fourth-quarter results mean that President Joseph R. Biden Jr. presided over the fastest average economic growth of any president since Bill Clinton. And while that partly reflects the rebound from the deep pandemic recession, growth during his final two years in office — after the initial reopening surge was largely complete — still rivaled that of his recent predecessors, and outpaced growth during the first years of the previous Trump administration.
Bharat Ramamurti, a former economic adviser to Mr. Biden, argued that the administration deserved credit for a rapid recovery from the pandemic, and also for longer-term investments in infrastructure. But inflation proved too much for Mr. Biden to overcome politically.
“You have a really good, strong, equitable, fast recovery from Covid, and a lot of long-term legacy pieces,” he said, “but he was ultimately undone politically by the fact that he wasn’t able to do enough on cost-of-living issues.”
