In recent years, the U.S. economy has continued to dodge expectations of a downturn, and 2024 followed suit. Despite facing challenges like the uncertainty surrounding a presidential election, high interest rates, and a slowing labor market, economic growth has remained robust. The U.S. is gearing up to outperform other Group of Seven countries, as projected by the International Monetary Fund.
However, the path hasn’t been entirely smooth. Inflation hasn’t disappeared as quickly as hoped, prompting the Federal Reserve to maintain a higher-for-longer stance on interest rates. The housing and manufacturing sectors felt the strain of elevated borrowing costs, and rising delinquency rates troubled consumers with credit card debt, mortgages, and other loans.
Let’s delve deeper into how the U.S. economy fared this year:
Consumers Persisted…
The resilience of the American consumer was the unexpected hero of the 2024 economic narrative. Even though the hiring pace slowed, wage growth outpaced inflation, and households reached unprecedented wealth levels, allowing them to sustain spending. According to Bloomberg Economics, household expenditures grew by 2.8% this year, outdoing last year and nearly doubling initial forecasts.
…But Signs of Strain Appeared…
That steadfast consumer strength saw cracks emerge. Many Americans have burned through their pandemic savings and are saving less of their income monthly. Consumer spending increasingly hinged on wealthier individuals, benefiting from property and stock market gains. Meanwhile, lower-income consumers leaned more on credit, showing signs of financial stress through rising delinquency rates.
…Including in the Labor Market
The labor market started to signal caution, too. Hiring slowed down, unemployment slightly rose, and a common recession indicator was triggered. Job openings declined, making job-seeking harder. Concerned about a potential job market crisis, Fed officials cut rates in September, though they grew optimistic towards the year-end as unemployment rates stabilized at historically low levels. Wage growth held steady at around 4%, providing some support for household finances.
Inflation Hits a Stalemate
Efforts to reach the Fed’s 2% inflation target hit a wall recently after seeing rapid declines in 2023 and further progress in early 2024. By November, a key inflation metric—the personal consumption expenditures price index excluding food and energy—rose by 2.8% year-over-year. While the Fed did reduce rates by a full percentage point this year to ease economic pressure, Chair Jerome Powell stressed the need for further inflation progress before more cuts could be considered in 2025.
High Rates Challenge the Housing Market…
The housing market struggled under ongoing high borrowing costs. Although mortgage rates dipped to a two-year low in September, they moved back toward 7% on expectations of prolonged Fed rate cuts. Builders tried various incentives to entice buyers, like mortgage buydowns and occasional price reductions. Though sales steadied somewhat, they remained below pre-pandemic levels. The National Association of Realtors foresaw a lower resale market pace in 2024 than the previous year, which was already the worst since 1995.
…And the Manufacturing Sector
Manufacturing suffered as well, battered by high interest rates and weaker foreign demand. Many companies downsized workforces to cut expenses, with durable goods manufacturers cutting jobs throughout most of the year. With President-elect Donald Trump preparing to take office, the sector faces uncertainty. While he promised to bolster domestic manufacturing, proposed tariffs, immigration policies, and tax cuts may hike inflation and strain supply chains. Consequently, capital spending by manufacturers could remain slow next year.
Overall, the U.S. economic narrative has been one of unexpected resilience balanced by increasing challenges, with certain sectors feeling the pinch more than others. Looking ahead, managing inflation and sector-specific challenges while sustaining consumer confidence will be crucial for continued stability.
