- The U.S. economic growth is slowing down
In the last three months of 2024, the United States' economic expansion didn't quite hit the heights it held in the preceding quarter. Two key areas played a role in this less-than-impressive growth. The United States' economic engine lost some steam towards the end of the previous year. In Q4, the nation's GDP expanded by an annualized 2.3%, as per the Department of Commerce's report issued in Washington on a Thursday. This growth rate aligned with the Department's initial estimate. Compared to Q3, which saw a 3.1% expansion, it's a noticeable slowdown.
One of the reasons for this deceleration stems from the U.S.'s faltering foreign trade. Exports took a dip in Q4, having experienced a significant surge in the previous quarter. Investments also saw a downturn. The positive side is that durable goods, such as automobiles, witnessed a surge during this period.
It's crucial to note that the U.S. uses annualized growth rates, which project how much the economy would expand if the current pace continued for a year. This method is not universally applied, particularly in Europe, making direct comparisons with other economies challenging. To obtain a comparable growth rate with Europe, the U.S. rate must be divided by four.
Let's delve further into the causes behind the U.S. economy's deceleration during Q4 2024:
- Investment decrease: Business investment, specifically non-residential investment, saw a significant decline. This encompassed a notable reduction in equipment spending, which decreased by 7.8%. However, residential investment demonstrated a 5.3% boost.
- Inventory drawdown: Substantial reductions in inventory investments dragged down GDP growth by 0.9 percentage points, playing a role in the slower expansion.
- Trade impact: Both exports and imports saw decreases; although their collective impact on GDP was minimal.
- Strong consumer spending: In spite of the overall slowdown, consumer spending remained robust, increasing by an impressive 4.2%. This helped offset some of the decline in other sectors.
- Government spending support: Government spending continued to prop up the economy, albeit at a more modest pace than in Q3.
While the U.S. economy managed to preserve a robust growth rate, the sluggishness in Q4 was primarily driven by decreased business investment and inventory adjustments, despite robust consumer spending and government aid.
The confirmed GDP decrease in 2024, specifically in the fourth quarter, is projected to continue at a slower pace compared to the United States' economic growth in 2024, if the current pace continues for a year. This forecast follows the noticeable slowdown observed in Q4, where the nation's GDP expanded by only 2.3%, a significant drop from Q3's 3.1% expansion.
The U.S., known for using annualized growth rates, may experience challenges in directly comparing its Q4 2024 growth rate with those of European economies due to the non-universal application of this method. To obtain a comparable growth rate with Europe, the U.S. rate must be divided by four.
Despite the overall slowdown, the United States' robust consumer spending continued to thrive, increasing by an impressive 4.2% in Q4 2024, thereby helping offset some of the decline in other sectors.
