U.S. Economic Growth Faces Continued Challenges

For the United States, 2024 has been an extraordinary year. While the economy experienced moderate overall growth, it faced numerous challenges. Meanwhile, the 2024 presidential election, the first since the pandemic, marked a political reshuffling that will directly influence future economic policies. Key economic trends in 2024 included steady growth in personal consumption expenditures, a slowdown in private fixed investment, a widening trade deficit, a contracting manufacturing sector, a relatively stable labor market, slower inflation declines, and escalating fiscal deficits. Additionally, the U.S. economy grappled with issues such as declining capacity utilization, a low labor participation rate, rising government debt, and growing trade protectionism.

Key Features of the U.S. Economy in 2024

1. Steady Growth in Personal Consumption Expenditures (PCE), but Potential Weakening Ahead

Personal consumption expenditures (PCE) remained the primary driver of U.S. GDP growth. According to the Bureau of Economic Analysis (BEA), annualized GDP growth rates for the first three quarters of 2024 were 1.6%, 3.0%, and 2.8%, with PCE contributing 1.3, 1.9, and 2.4 percentage points, respectively. Disposable personal income (DPI) also showed steady growth during this period. However, as real DPI growth slows, PCE's contribution to economic growth may weaken. The Federal Reserve Bank of Atlanta projected 3.1% annualized GDP growth for Q4 2024, with PCE's influence expected to diminish.

2. Slowing Private Fixed Investment and Decline in New Business Formation

BEA data indicated that private fixed investment (PFI) grew at a quarter-on-quarter rate of 1.6%, 0.6%, and 0.4% in the first three quarters. Concurrently, the Census Bureau reported a monthly decline in new business formations since September 2023, with numbers falling to 424,000 by May 2024. Despite minor fluctuations in the latter half of the year, business formations remained lower than the previous year. This trend aligned with a consistently low CEO confidence index, which only showed improvement in December 2024.

3. Moderate Trade Growth and a Widening Trade Deficit

The U.S. Department of Commerce reported that from January to October 2024, total merchandise trade volume rose by 3.5% year-on-year to $4.4476 trillion. Exports and imports increased by 1.7% and 4.7%, respectively, while the services trade surplus reached $231.3 billion. However, the goods trade deficit expanded by $93.6 billion to $886.5 billion, resulting in a total trade deficit of $735.9 billion—a 12.3% year-on-year increase.

4. Contracting Manufacturing Sector and Declining Capacity Utilization

The U.S. manufacturing Purchasing Managers' Index (PMI) remained below 50—the expansion threshold—throughout most of 2024, signaling contraction. Average capacity utilization from January to October stood at 77.7%, 1.93 percentage points below the long-term average (1971–2022). Manufacturing capacity utilization was 76.88% during the same period, also below its historical average.

5. Stable Labor Market with Persistent Low Labor Participation Rate

From January to November, the unemployment rate ranged between 3.7% and 4.3%, remaining below the natural unemployment rate of 4.4%. The labor participation rate, however, hovered between 62.5% and 62.7%, below the pre-pandemic level of 63.3%. Nonfarm employment showed significant monthly volatility, with notable gains in sectors like healthcare, leisure, and hospitality.

6. Slower Inflation Decline with Flattening Inflation Expectations

Inflation rates exhibited a mixed trend in 2024, with the Consumer Price Index (CPI) rising in the first quarter, declining from April to September, and edging upward in October and November. Sticky core CPI—a measure reflecting longer-term trends—grew 3.87% year-on-year in November, exceeding overall CPI growth. Inflation expectations for the next year, as measured by the University of Michigan, stood at 2.6%, with long-term expectations slightly above the Federal Reserve's 2% target.

7. Rising Fiscal Deficit and Record Federal Debt

The U.S. Treasury reported fiscal year 2024 revenue and expenditures at $4.92 trillion and $6.75 trillion, respectively, resulting in a $1.83 trillion deficit—a pandemic-era high. Key drivers included increased social security and defense spending, alongside surging interest payments on debt. Federal debt exceeded $36 trillion, setting a historic record and constraining fiscal policy options.

Outlook for 2025

The economic direction in 2025 will hinge on the new administration's policies regarding immigration, tariffs, taxation, and energy. The International Monetary Fund (IMF) predicts U.S. GDP growth will slow to 2.2% in 2025 as fiscal tightening and labor market cooling dampen consumption. Protectionist trade policies, immigration restrictions, and expanded tax cuts could further risk economic deceleration. Trade costs from tariffs might burden businesses and consumers, while immigration limits could exacerbate labor shortages. Tax cuts may inflate federal debt, leaving less fiscal flexibility for future challenges.

Source: Economic Daily