The US economy just had another robust year

Washington (CNN) — Another year of robust economic growth is in the books, underscoring how the Biden administration handed President Donald Trump what many consider a solid economy.

The US economy grew 2.5% over the past year, according to new Commerce Department figures released Thursday, comparing the fourth quarter in 2024 with the one from a year earlier. A resilient labor market supported strong consumer spending last year. Americans’ spending accounts for about 70% of the US economy. Business investment also fueled growth in 2024, though it went into reverse in the final months of the year.

The economy expanded at an annualized rate of 2.3% in the fourth quarter, as measured by gross domestic product, the broadest measure of economic output. That was slightly below economists’ expectations of a 2.4% rate, according to FactSet. The figures are adjusted for seasonal swings and inflation.

“Fourth-quarter GDP data capped off a surprisingly strong year in 2024,” Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management, said in commentary issued Thursday. “The US consumer has been unstoppable, supported by wealth creation, a strong labor market, and lending.”

The latest GDP report comes on the heels of the Federal Reserve’s latest policy decision announced Wednesday. The central bank opted to hold its key interest rate steady, following three back-to-back rate cuts last year.

While Fed officials seem inclined to hold off on further rate cuts for the next few months, Fed Chair Jerome Powell in his post-meeting news conference said the US economy remains in a good place, with a steady labor market and inflation that seems on track to slow further. He also noted that the strong numbers in the aggregate are masking some economic pain under the surface.

Economists broadly expect the US economy to continue with its expansion in 2025, but the one wild card is the economic effect of Trump’s policies, which include mass deportations, stiff tariffs and making his 2017 tax cuts permanent.

Details from the report

Consumers stepped up their spending in the October-through-December period, boosting the overall economy in the process.

Consumer spending accelerated to an annual rate of 4.2% in the fourth quarter, up from the prior quarter’s 3.7%. Spending both on goods and services gained steam that period, especially purchases of durables, which registered a stunning 12.1% rate.

The pick-up in spending on durable goods — products meant to last at least three years such as furniture and cars — may have been due to shoppers scrambling to get ahead of the stiff tariffs Trump has floated. The president has promised to slap 25% tariffs on goods from Mexico and Canada on February 1, a move that could make appliances and cars more expensive.

Consumers may have also been enticed to snap up durables because of lower short-term interest rates.

However, business spending was one big red flag in the latest GDP report.

Nonresidential fixed investment, which captures how much businesses are investing in their operations, contracted at an annual rate of 2.2% in the fourth quarter, down sharply from the 4% gain in the prior three-month period.

“The one drag was businesses didn’t invest in inventories as much as expected, which may be a reaction to economic uncertainty surrounding the new presidential administration,” Robert Frick, corporate economist at Navy Federal Credit Union, said in a note Thursday.

The economy under Trump 2.0

Trump is beginning his second term with a US economy that’s in very good shape, but he’s also promised major policy changes.

“In terms of the outlook, President Trump is looking to create a low-taxation, light-touch regulatory environment in order to boost growth prospects while implementing tariffs to improve US manufacturing competitiveness and promote reshoring of economic activity,” James Knightley, chief international economist at ING, said in a note Thursday. “This should all be supportive for economic activity, but at the same time there is evidence of a cooling jobs market and nominal income growth is slowing notably.”

Trump has also kicked off an aggressive crackdown on immigration, which economists say could weigh on growth and put employers who rely on migrant labor in a bind.

There aren’t many concerns about economic growth this year, but one fear is that Trump’s “expansionary” policies, aimed at boosting economic activity, could end up stoking inflation. If that turns out to be the case, not only would it sting everyday Americans who’ve already dealt with years of high inflation, but it could also keep the Fed from cutting rates, and possibly hike them instead.

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