The U.S. economy is growing at a healthy clip. Real GDP expanded by 2.3% in the fourth quarter, bringing the annual growth rate to 2.8% in 2024. For context, the economy grew at an average annual rate of 2.4% during the 2010-2019 economic expansion. Robust consumer spending continues to drive economic activity. Real personal consumption expenditures increased 4.2% in Q4, the largest quarterly upturn since early 2023. Fresh data from December reveal that consumers closed out the year with a greater-than-expected 0.7% increase in spending, supported by a solid 0.4% gain in incomes. November’s spending uptick was also revised higher from 0.4% to 0.6%. Fervent spending on durables underpinned outlays in late 2024, notably on motor vehicles and recreational goods.
If surveys are to be believed, some tariff front-loading may have played a role in consumers turning out in Q4. Nearly one-third of consumers surveyed by the University of Michigan spontaneously mentioned tariffs in January, up from 24% in December and less than 2% before the election. We expect to see some moderation in spending if and when new tariffs are imposed, which may begin in earnest as soon as this Saturday with 25% levies on Canada and Mexico.
Private investment took a sizable hit in Q4. Business spending waned 5.6%, driven by a sharp drop in inventories. Mechanically speaking, inventories still expanded, but at a slower pace than in Q3. Inventories are subject to volatile swings, so we often look through them when gauging the underlying health of the economy. Real final sales to private domestic purchasers, which strips out government spending, net exports and inventories from GDP, rose 3.2% in Q4, signaling that the U.S. economy ended 2024 on a strong note. Business spending also appears poised for an improvement in the quarters ahead. Core capital goods orders in November and December rose at the fastest two-month pace since early 2023.
Other business investment categories similarly weakened in Q4. Softer outlays on information processing and transportation equipment were notable drags, the latter of which can be partially explained by the now-concluded Boeing strikes. High interest rates also continued to weigh on nonresidential structures spending, particularly commercial real estate construction. Meanwhile, firms continued to pour resources into intellectual property software and R&D. We remain bullish on U.S. software spending, even after the unveiling of DeepSeek called into question how much capital investment is needed to fund the AI transition.
Residential investment was another bright spot. Private residential outlays rose 5.3% in Q4 following back-to-back contractions in the prior two quarters. This upturn does not reflect the beginnings of a housing market recovery, but rather a pickup in homebuilding brought on by a lull in mortgage rates late last summer. Pending home sales dropped 5.5% in December as a reminder that high mortgage rates remain prohibitive for prospective buyers. That said, new construction has been relatively insulated from broader housing market strains. New home sales rose 3.6% in December and climbed 2.5% higher in 2024 as a whole, despite the fact that mortgage rates hovered near 7.0% for most of that time. This resilience boils down to builders’ use of price cuts, mortgage rate buydowns and other incentives to improve new construction affordability. Looking ahead, the housing market is likely to remain under pressure this year as slower disinflation limits the scope for interest rate cuts.
Rising COVID-19 Cases Put A Damper On Re-openings
Wells Fargo Economics & Financial Report / Jun 27, 2020
The rising number of COVID-19 infections gained momentum this week, with most of the rise occurring in the South and West. The rise in infections is larger than can be explained by increased testing alone and is slowing re-openings.
This Week's State Of The Economy - What Is Ahead? - 12 August 2020
Wells Fargo Economics & Financial Report / Aug 15, 2020
The consumer has been a bright spot in the recovery so far, but with jobless benefits in flux and no clear path for the long-awaited stimulus bill, the support here could fade.
This Week's State Of The Economy - What Is Ahead? - 02 April 2021
Wells Fargo Economics & Financial Report / Apr 08, 2021
Increased vaccinations and an improving public health position led to an easing of restrictions and pickup in activity across the country in March.
This Week's State Of The Economy - What Is Ahead? - 24 April 2020
Wells Fargo Economics & Financial Report / Apr 27, 2020
Oil prices went negative for the first time in history on Monday as the evaporation of demand collided with a supply glut. In the past five weeks, 26.5 million people have filed for unemployment insurance, or more than one out of every seven workers.
This Week's State Of The Economy - What Is Ahead? - 04 August 2023
Wells Fargo Economics & Financial Report / Aug 09, 2023
Employment growth was broad-based, though reliant on a 87K gain in health care & social assistance. Modest gains from construction, financial activities and hospitality also contributed to private sector job growth.
This Week's State Of The Economy - What Is Ahead? - 12 June 2020
Wells Fargo Economics & Financial Report / Jun 13, 2020
Lock downs began to be lifted across most of the country by the end of May and the total amount of daily new coronavirus cases has been trending lower. But the flattening case count has not been consistent across the country.
This Week's State Of The Economy - What Is Ahead? - 16 October 2021
Wells Fargo Economics & Financial Report / Oct 22, 2021
The first economic data released this week in the United States reinforced the theme that labor supply and demand are struggling to come into balance.
This Week's State Of The Economy - What Is Ahead? - 01 October 2021
Wells Fargo Economics & Financial Report / Oct 10, 2021
Economic data this week indicated that the ongoing expansion still has some momentum despite some familiar headwinds, though this week\'s releases were largely overshadowed by a busy week on Capitol Hill.
This Week's State Of The Economy - What Is Ahead? - 21 February 2020
Wells Fargo Economics & Financial Report / Feb 22, 2020
Minutes from the January 28-29 FOMC meeting indicate the coronavirus will not push the Fed to cut interest rates, and for the most part housing and manufacturing survey data this week supported that view.
This Week's State Of The Economy - What Is Ahead? - 03 March 2023
Wells Fargo Economics & Financial Report / Mar 07, 2023
Looking at Q4 GDP, Australia\'s economy grew by less than expected, GDP was flat for the quarter in both Canada and Switzerland, and Sweden\'s economy contracted in the final quarter of last year.
