The U.S. economy showed some resilience in 2024, with notable improvements in several key areas. Gross Domestic Product (GDP) increased at an annual rate of 3.1 percent in the third quarter of 2024, according to the “third” estimate. The total federal spending in 2024 is $6.75 trillion, which is 23.4% of the GDP. The GDP overall for 2024 is $28.83 trillion, driven by higher consumer spending, nonresidential fixed investment, government spending, and exports.
Consumer spending, which accounts for a significant portion of GDP, remained strong as Americans continued to purchase goods and services despite inflationary pressures. Nonresidential fixed investment, which includes business investments in equipment, buildings, and intellectual property, saw robust growth, signaling confidence among businesses in the future economic outlook.
Government spending also contributed positively, especially in areas related to infrastructure development, defense, and healthcare. Exports grew as global demand for U.S. products and services rebounded, particularly in sectors like technology, machinery, and agricultural goods. Despite facing global challenges such as geopolitical tensions, supply chain disruptions, and fluctuations in energy prices, the economy demonstrated strong foundations for continued growth, with particularly promising prospects in trade and investment. This expansion in GDP reflected the economy’s ability to adapt and thrive in an uncertain global environment, with sectors like technology, finance, and manufacturing showing resilience and growth potential.
Inflation
Inflation, which had surged to a 40-year high of 9.1% in June 2022, moderated significantly by January 2023, dropping to 3.1%. Shelter costs were a major contributor to the inflationary pressure for much of the year, with gasoline prices driving the inflation in mid-2023. Although inflation rates are currently lower at the end of 2024, many Americans are still feeling the pressure on their wallets, especially in housing, grocery and energy costs.
The Federal Reserve’s response to rising inflation involved aggressive interest rate hikes, raising the federal funds rate by a total of 11 times over 2022 and 2023. By July 2023, the rate reached between 5.25% and 5.50%, the highest since 2007. These rate hikes increased borrowing costs across the economy, affecting both consumers and businesses. The goal of these measures was to rein in inflation and prevent the economy from overheating.
Employment
On the employment front, the labor market remains tight. While the unemployment rate was at a low of 3.4% in January 2023, it edged up to 3.7% by December of that year. The ratio of unemployed individuals to job openings remained below one throughout the year, signaling continued demand for workers. However, the labor force participation rate, which measures the proportion of working-age individuals either employed or actively looking for work, increased slightly to 62.5% by January 2024. Despite these gains, experts project that labor force participation will decline in the coming years due to the aging population.
Wages
Wages also saw modest growth, with average hourly earnings up 4% compared to the previous year, indicating a relatively stable increase in wages. However, after adjusting for inflation, the real wage growth was only 1.4%, which indicates that the purchasing power of most workers has been largely offset by rising living costs. In industries like education and health services, earnings even saw slight declines, adding to the challenges faced by workers in these sectors.
Goods, Services and Trade
The goods and services deficit saw a significant rise in the most recent period, increasing by $80.7 billion, or 12.3%, compared to the same timeframe in 2023. This widening gap reflects a faster growth rate in imports relative to exports. Exports climbed by $94.0 billion, marking a 3.7% increase, driven by strong global demand for U.S. goods such as machinery, technology, and agricultural products, as well as services like financial consulting and tourism. Key export markets included Europe and Asia, where economic recovery efforts fueled higher purchasing activity.
On the other hand, imports surged by $174.7 billion, a 5.4% increase, as the U.S. continued to rely heavily on foreign goods and services. High consumer spending within the country drove demand for imported electronics, vehicles, and consumer goods. Additionally, supply chain stabilization allowed for increased availability of previously constrained products, further contributing to the rise in imports.
The disparity between the growth rates of exports and imports highlights underlying challenges in balancing trade. Factors such as a strong U.S. dollar made American goods more expensive abroad while making foreign goods more attractive to domestic buyers. Additionally, rising energy imports due to fluctuating global oil prices and increased consumer demand contributed to the deficit.
Despite the growing deficit, the increase in both exports and imports signals robust economic activity. Policymakers and trade experts are monitoring the situation closely to address trade imbalances through strategies like negotiating trade agreements, enhancing competitiveness of U.S. industries, and supporting export-driven growth sectors. These efforts aim to ensure the trade deficit does not undermine broader economic stability.
Challenges for the New Year
Despite the challenges posed by inflation, rising interest rates, and ongoing shifts in the labor market, the U.S. economy demonstrated resilience and adaptability in 2024. Inflation, which peaked at a 40-year high in mid-2022, continued to decline, reaching 3.1% by January 2023. As of reporting, the current U.S. inflation rate sits at 2.7%. This progress reflects the Federal Reserve’s aggressive monetary tightening, including seven interest rate hikes since 2022. These policies raised borrowing costs, slowing demand in key sectors such as housing and consumer credit, but helped stabilize price growth.
The labor market, while facing headwinds, remained robust. While the unemployment rate rose slightly, job openings continued to outpace the number of unemployed workers. Wage growth has provided some cushion for households, though real wage gains remained modest due to lingering inflation.
The Federal Reserve’s tight monetary policies, while curbing inflation, also posed challenges to growth in interest-sensitive industries like real estate and manufacturing. Mortgage rates soared, dampening housing market activity, while higher borrowing costs constrained business investment. Nonetheless, sectors such as technology, renewable energy, and infrastructure benefited from federal initiatives and private investment, supporting the economy’s expansion.
Looking Ahead
Looking ahead, balancing inflation control with sustainable growth will be critical as the U.S. economy navigates an increasingly interconnected global landscape. Geopolitical tensions, supply chain vulnerabilities, and shifting trade dynamics continue to pose some risks, while opportunities abound in emerging industries such as green technology and digital transformation. Policymakers must maintain a delicate equilibrium, using targeted fiscal measures and prudent monetary policies to foster innovation, address inequality, and ensure long-term economic stability.