The US economy experienced an annual growth rate of 2.3 percent in the fourth quarter, which was lower than the anticipated 2.6 percent predicted by economists and a decrease from the 3.1 percent growth rate seen in the previous quarter. This data was released by the Bureau of Economic Analysis.
This report follows the Federal Reserve’s decision to maintain interest rates, with Chair Jay Powell indicating that the economy’s strength allows the central bank to avoid rushing into reducing borrowing costs.
Consumer spending significantly contributed to the economic growth observed in the fourth quarter, alongside government expenditures, which the Bureau reported. However, a decline in business investment partially counterbalanced these gains.
Diane Swonk, chief economist at KPMG US, noted the significance of the increased consumer spending, particularly on major purchases such as vehicles, which reached their highest sales levels since May 2021. She also mentioned that a robust travel season had led to increased spending on services.
For the entire year of 2024, the US economy saw an overall expansion of 2.8 percent, closely matching the growth of 2.9 percent from 2023. Bernard Yaros, lead US economist at Oxford Economics, commented that the slowdown in the fourth quarter is unlikely to persist, attributing the decline in investment largely to a correction following an earlier surge in aircraft investments.
The International Monetary Fund anticipates that the US economy will continue to outperform its counterparts in Europe, Canada, and Japan in the coming year. Expectations of sustained growth have been bolstered by recent tax cuts promised by political leadership.
However, there are concerns that trade tensions originating from potential tariff increases could hinder these growth projections. Yaros highlighted that an immediate introduction of widespread tariffs on key trade partners, including a proposed 25 percent tax on Canada and Mexico, alongside additional tariffs on China, could reduce growth by 1.2 percentage points.
Following the release of this data, US government bonds remained stable, with the yield on two-year bonds declining slightly to 4.21 percent and the 10-year yield falling to 4.52 percent. In early trading on the stock market, US stocks showed positive movement, with the S&P 500 index increasing by 0.5 percent and the Nasdaq Composite rising by 0.6 percent.
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