The US economy grew at an annualized rate of 2.3% in the fourth quarter, matching consensus estimates, according to the Bureau of Economic Analysis’s (BEA) second estimate. This figure is unchanged from the advanced estimate and reflects slower growth compared to the 3.1% annualized rate seen in the third quarter.
Steady Growth but Slower Pace Compared to Q3
The BEA’s second estimate indicates that economic growth in the fourth quarter was primarily driven by increases in consumer spending and government expenditures, partially offset by a decrease in investment. The report confirms that the economy maintained a steady pace, but at a slower rate compared to the third quarter.
The BEA uses more complete source data for the second estimate compared to the initial advanced estimate. A third and final estimate for Q4 GDP growth is expected at the end of March, which will provide a more comprehensive picture of economic activity in the final quarter of 2024.
Impact of Trump’s Tariff Plans on Economic Sentiment
The growth update follows mounting concerns over President Donald Trump’s tariff policies, which economists warn could slow economic growth and contribute to higher inflation. Recent data shows a sharp decline in consumer confidence in February, marking the largest monthly drop in nearly four years.
The latest consumer sentiment reports also reflect growing fears over the potential economic impact of Trump’s policies, including tariffs, immigration restrictions, and job cuts related to the Department of Government Efficiency (DOGE) initiatives.
Morgan Stanley analyst Mike Wilson highlighted the risks in a client note, stating, “The immediate policy changes from the new administration (immigration enforcement and tariffs) are likely to weigh on growth while providing little relief on inflation.”
Forward-Looking Economic Projections
While the GDP data is considered backward-looking, projections for the current quarter suggest steady economic growth. The Atlanta Fed GDPNow tracker currently forecasts an annualized growth rate of 2.3% for the first quarter of 2025.
However, economists remain cautious about the outlook, given the uncertainty surrounding Trump’s tariff plans and their potential impact on consumer spending, investment, and inflation.
Unemployment Claims and Labor Market Dynamics
In related economic data, initial unemployment claims for the week ending Feb. 22 reached 242,000, exceeding Wall Street’s expectations of 221,000. This marks the highest level of claims since December, reflecting potential softness in the labor market.
Washington, D.C. saw a notable increase in jobless claims, with filings rising to 2,047 compared to 1,626 the previous week. However, economists noted that the timing is still early to assess the full impact of DOGE-related layoffs.
Continuing weekly unemployment claims remained at three-year highs, standing at 1.86 million for the week ending Feb. 15. This suggests ongoing challenges for workers trying to secure new employment opportunities.
Inflation Risks and Economic Challenges Ahead
The economic outlook is clouded by rising inflation expectations, driven by Trump’s tariff policies and supply chain disruptions. February’s consumer confidence data showed heightened inflation fears, reflecting concerns about cost increases for imported goods.
Economists warn that prolonged inflationary pressures could erode purchasing power and dampen consumer spending, posing a challenge for sustained economic growth. The Federal Reserve’s response to inflation dynamics will be closely watched in the coming months.
Balancing Growth and Economic Uncertainty
The US economy’s 2.3% growth rate in the fourth quarter highlights steady but slowing momentum amid increasing economic uncertainties. As Trump’s tariff policies unfold and inflation risks persist, economists anticipate continued volatility in consumer sentiment and business investment.
The upcoming third estimate for Q4 GDP and the Federal Reserve’s inflation strategy will be key indicators of economic stability moving forward. Investors and policymakers will need to navigate these challenges to sustain growth in an evolving economic landscape.