In recent years, many analysts believed that the U.S. economy might slow down, however, overall, the U.S. economy in 2024 once again performed robustly unexpectedly. According to the analysis of the International Monetary Fund, the U.S. became the best-performing country among the G7 countries.
Nevertheless, uncertainties still exist in the U.S. economy. On the one hand, inflation data has not reached the 2% target, leading to the Federal Reserve adopting a long-term policy of higher interest rates. In addition, the labor market has also shown poor performance, coupled with geopolitical tensions, adding some uncertainties, leaving the economic outlook for 2025 still unclear.
The economic performance in 2024 exceeded expectations, mainly due to strong consumer spending in the United States. Despite a slowdown in hiring in the labor market, wage growth continued to outpace inflation, setting new records in household wealth, supporting continued expansion in household spending.
According to economic analysis by Bloomberg, household spending in 2024 is expected to grow by 2.8%, higher than in 2023, almost double the initial predictions.
Although consumer spending continues to perform well, the factors supporting consumption are starting to diminish. On one hand, most Americans have already depleted their savings from the pandemic period, and consumer spending is increasingly reliant on high-income earners driving it, as they are spending more due to the wealth effects of rising house prices and the stock market. On the other hand, lower- and middle-income consumers are relying on credit cards and loans to make payments, with some experiencing difficulties in repaying debts.
Furthermore, the number of job vacancies in the labor market is decreasing, making it increasingly difficult for the unemployed to find new jobs.
Concerned that the job market might be approaching a critical point, Federal Reserve officials began cutting interest rates in September 2024, and as the unemployment rate stabilized, the Fed became more optimistic at the end of 2024. Meanwhile, wage growth remained stable at around 4%, which should continue to support household finances.
Inflation data rapidly decreased in 2023, made further progress in the first half of 2024, but in the second half of 2024, the Fed’s progress towards the 2% inflation target stalled. For instance, the “Personal Consumption Expenditures Price Index excluding food and energy” in November showed an annual increase of 2.8%, one of the Fed’s preferred inflation indicators, but its performance was notably lacking.
Fed Chairman Powell stated that the Fed needs to see more progress on the inflation front before further rate cuts in 2025.
Impact of Long-Term High-Interest Rate Policies: Real Estate and Manufacturing Underperform
Under the pressure of rising borrowing costs, the real estate market in 2024 initially saw poor sales volumes, later stabilizing but still below pre-pandemic levels. The resale housing market is a major force in the real estate market; however, according to the National Association of Realtors, the sales pace of existing homes in 2024 was even lower than in 2023, which was already the worst year since 1995.
Manufacturing is another victim of rising interest rates. High-interest rates and weak foreign demand have hindered investment in new ventures, with many companies cutting jobs to save costs.
(*This article referenced a report from Bloomberg.)