The US economy grew at an annualized rate of 2.4% in the fourth quarter of 2024, a slight upward revision from the previously estimated 2.3%, the Commerce Department said on Thursday.
However, a widening trade deficit and the impact of new tariffs are expected to weigh on growth in early 2025.
The revision reflected stronger fixed investment and government spending, which offset a downward adjustment to services consumption. Core real GDP, which strips out trade and inventories, remained unchanged at 3% annualized.
Slower growth ahead
Despite the solid growth to close 2024, early indicators point to a slowdown. The US trade deficit in goods remained historically high in February at $147.9 billion, slightly narrowing from a record $155.6 billion in January. Importers rushed to bring in goods ahead of planned tariff increases, distorting trade flows.
“GDP was revised up a hair in late 2024, but the trade deficit points to a weak start to 2025,” said Bill Adams, chief economist at Comerica Bank. “The first quarter GDP report will be ugly, in large part due to a drag from trade.”
On March 26, President Donald Trump announced a 25% tariff on imported cars and light trucks, set to take effect in early April. The move has added to economic uncertainty, with potential inflationary effects complicating the Federal Reserve’s decision-making on interest rates.
“It’s hard to say how tariffs will ultimately affect US business growth or employment since the policy keeps changing,” Adams said. “Businesses will move more factories back to the US if they think the tariffs are permanent and move less or none if they believe the tariffs are a temporary negotiating tactic.”
Fed’s rate path uncertain
Higher tariffs could push inflation upward, making it more difficult for the Fed to justify rate cuts even if first-quarter growth falters. Comerica Bank expects the Fed to cut rates once in 2025, likely in July, though financial markets are pricing in a larger reduction of up to three-quarters of a percentage point.
Meanwhile, Wells Fargo analysts noted that while GDP and corporate profits showed strength in late 2024, worsening trade data supports expectations that net exports will drag heavily on first-quarter growth.
“The fourth-quarter GDP data tell us the economy entered the year with momentum and profitability and can thus withstand a degree of policy uncertainty,” Wells Fargo said.
Consumer sentiment also presents a challenge, with growing concerns about job security potentially dampening spending on travel, dining, and big-ticket purchases.