2024 ended with strong consumer spending and overall econ growth.

At the end of last week, we got two important reports from the Bureau of Economic Analysis that showed the US economy finished up 2024 in a good place. On Thursday, we got the first look at Q4 GDP, which indicated that growth kept up as the year ended.

Gross domestic product, a measure of all the goods and services produced across the sprawling U.S. economy during the period, showed that the economy accelerated at a 2.3% annualized inflation-adjusted pace in the fourth quarter. Economists surveyed by Dow Jones had been expecting an increase of 2.5% after growth of 3.1% in the third quarter.

The report closes out 2024 on a somewhat downbeat note, though growth held reasonably solid. For the full year, GDP accelerated 2.8%, compared with 2.9% in 2023. Growth was 2.5% from Q4 of 2023 to Q4 of 2024. Thursday’s release was the first of three estimates the department’s Bureau of Economic Analysis will provide....

Growth held up largely on the backs of consumers who continued to spend briskly despite the ongoing burden of high prices on everything from homes to cars to eggs at the supermarket. While inflation is well off the boil from its mid-2022 40-year high, it remains a burden for households, particularly those on the lower end of the income scale.

Consumer spending rose at a robust 4.2% pace and, as usual, amounted to about two-thirds of all activity. Government spending also provided a boost, accelerating at a 3.2% level.

Not bad at all, and the 2.3% rate is a bit misleading, as the number would have been closer to 3.3% if it wasn't for a drawdown in inventories. In fact, if you look at the GDP number without the volatile inventory figure and keep it to the private sector, we had our strongest quarter of growth in nearly 2 years.

It's also worth noting that consumption was even stronger than it had been, adding more than 2.8% to GDP in the last 3 months of 2024. But at the same time, I'd note that almost all other components of GDP shrunk compared to what we'd seen for much of the last year.

Following that GDP report, we got the always-important income and spending report on Friday for December, and it showed that things were still in the same solid growth trend that we'd seen for much of this last year.

The personal consumption expenditures price index increased 2.6% on a year-over-year basis in December, 0.2 percentage point higher than the November reading and in line with the Dow Jones estimate.

Excluding food and energy, core PCE registered a 2.8% reading, also meeting expectations and the same as the prior month. Though the Fed considers both readings, historically officials have seen core as the better gauge of long-run inflation.

On a monthly basis, headline PCE rose 0.3% while core increased 0.2%, both in line with forecasts as well....

The report Friday also showed that personal income increased 0.4% in December as forecast, while spending rose 0.7%, or one-tenth of a percentage point ahead of the estimate.

Inflation-adjusted consumer spending continued its consistent growth pattern that's been going on for the better part of 2 years, as inflation subsided from their peaks of Summer 2022.

I'll also note that this report revised its per capita income numbers based on December estimates from the Census Bureau that showed larger population growth from immigration than previously known. And as a result, it's slowed the growth of inflation-adjusted disposable income per capita from what we had, although it still shows decent growth over the last 2 1/2 years and is well above where we were 5 years ago.

So maybe this lower per capita figure could explain why some more Americans could believe the economy wasn't as good as the overall numbers indicated, but it still didn't stop them from spending money over the last couple of years. The gap between spending growth and income growth does seem to be getting larger, however, and the US savings rate is now under 4%, the lowest rates since the high-inflation times of 2022.

What I see out of this is that the economy was in a good place as Donald Trump took office, but that growth could be significantly slowed and/or stopped if consumers stopped spending so freely. And if something would happen to reignite inflation, maybe consumers wouldn't be as keen to pay those prices, and the economy would quickly fall into recession, since there isn't a lot else to maintain the momentum if the consumer stops contributing.

In response to Trump’s 25% tariffs on Canadian goods, Canada announced 25% retaliatory tariffs on American goods — beer, wine, bourbon, fruits, vegetables, clothes, perfume, household appliances, plastic, lumber, etc. I bet Americans will soon learn a very painful lesson about how tariffs work, eh?

— Jon Cooper (@joncooper-us.bsky.social) February 2, 2025 at 7:09 AM

Oh....