The U.S. economy exhibited a mixed performance in the fourth quarter of 2024, with consumer spending emerging as a key driver despite broader signs of slowing growth. The GDP growth rate decelerated compared to earlier quarters, yet consumer expenditures demonstrated resilience, offering a glimpse of optimism in an otherwise tepid economic environment. Though income levels rose, challenges such as declining personal savings rates and fluctuating confidence levels remain central to economic discussions.
What factors influenced GDP growth in Q4?
Real GDP for Q4 2024 expanded at an annualized rate of 2.3%, a notable reduction from the 3% and 3.1% increases in the third and second quarters, respectively. According to the Bureau of Economic Analysis, this deceleration reflects a mixed economic landscape. Consumer spending and government expenditures rose 4.2% and 2.5%, respectively, while a decline in imports offered a slight boost. However, these gains were partially offset by a significant 5.6% contraction in private investment.
How is consumer behavior shaping economic trends?
Personal consumption expenditures showed a modest increase of 2.8% in Q4 from the previous year, slightly surpassing 2023’s 2.5% but far from the rapid growth of 8.8% seen in 2021. Mastercard (NYSE:MA)’s recent earnings report highlighted that debit card spending rose in the low double digits year-over-year, outpacing credit card usage. Despite robust spending trends, personal savings dropped to $896.4 billion—the lowest level of 2024—while the savings rate continued its downward trajectory, reaching 4.1% in the fourth quarter.
Looking at earlier reports, 2024’s first half experienced more robust GDP growth at above 3%, driven by stronger private investments and export activity. In contrast, the second half saw a tilt toward consumer and government spending as investment activity declined. The persistent drop in the national savings rate has been a recurring theme, signaling potential vulnerabilities in household financial stability.
Meanwhile, inflationary pressures appeared to build. The personal consumption expenditure (PCE) price index climbed 2.3% in Q4, marking an acceleration from the previous quarter’s 1.5%. Such inflation dynamics could further strain consumer finances, potentially influencing future spending behaviors.
Consumer confidence metrics also underscored growing uncertainty. The Conference Board’s confidence index dropped by 5.4 points to 104.1, reflecting a decline in optimism regarding current business and labor market conditions. This sentiment aligns with a 10-point decline in the “present situations” sub-index, underscoring muted expectations for economic prospects.
Corporate data complements these observations. Major banks noted a mixed trend in deposits, resonating with the GDP report’s insights on savings. While consumer spending continued into the new year, the broader economic context suggests households may face growing financial pressures.
The current economic scenario indicates a delicate balance between resilient consumer activity and underlying challenges such as reduced savings, rising inflation, and lowered confidence. Policymakers and businesses must account for these dynamics as they navigate 2025. Monitoring consumer sentiment, inflation trends, and spending behavior will be crucial for predicting future economic performance. Additionally, addressing the structural issues behind the declining savings rate could enhance economic stability in the long term.
