US economy grew at 2.3% rate in fourth quarter

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The US economy grew at an annualised rate of 2.3 per cent in the fourth quarter, a weaker than expected end to a year dominated by the resilience of American consumers.

Thursday’s GDP figure from the Bureau of Economic Analysis compared with the 2.6 per cent expected by economists polled by Bloomberg and 3.1 per cent in the third quarter.

The report comes a day after the Federal Reserve held interest rates, with chair Jay Powell saying the strength of the economy meant the central bank did not need to be “in a hurry” to cut borrowing costs.

Consumer spending powered a large portion of the growth in the world’s largest economy in the fourth quarter, with government expenditures also boosting the figures, the BEA said. A decline in investment partially offset the rise.

“It’s really important to see the acceleration in consumer spending, notably on big-ticket items — vehicle sales went to their highest level since May 2021,” said Diane Swonk, chief economist at KPMG US, who added that “a banner travel season” had contributed to services spending.

The US economy expanded 2.8 per cent for the whole of 2024, on a par with the 2.9 per cent recorded in 2023.

Bernard Yaros, lead US economist at research firm Oxford Economics, said the slowdown in growth in the fourth quarter was unlikely to last. “The weakness on the investment side was attributable in large part to payback from an unsustainable boom in aircraft investment earlier this year,” Yaros said.

The IMF expects the US economy to continue to outpace peers in Europe, Canada and Japan this year. President Donald Trump’s pledge to cut taxes has raised expectations that US growth will remain robust.

But some economists are concerned that if Trump sparks a trade war with tariffs on trading partners, it could wipe out some of those expected gains.

“The biggest risk to our 2025 forecast is an immediate imposition of across-the-board tariffs on key trading partners,” said Yaros, adding that a 25 per cent levy on Canada and Mexico, plus additional tariffs on China, would dent growth by 1.2 percentage points.

US government bonds were broadly steady following the data, with the two-year yield 0.02 percentage points lower at 4.21 per cent, while the benchmark 10-year yield was down 0.04 percentage points at 4.52 per cent.

US stocks rose in early New York trading, with the S&P 500 gaining 0.5 per cent and the tech-heavy Nasdaq Composite also advancing 0.6 per cent.