U.S. Economy Shows Resilience Amid Inflation Concerns
The U.S. economy demonstrated resilience in the early fourth quarter of 2024, with consumer spending rising slightly more than expected in October. However, progress on lowering inflation appears to have stalled in recent months, presenting challenges for the Federal Reserve’s monetary policy decisions.
Economic Indicators
- Consumer Spending
Consumer spending, which accounts for over two-thirds of U.S. economic activity, increased by 0.4% in October, surpassing economists’ forecasts of a 0.3% gain. This uptick suggests the economy has maintained much of its solid growth momentum from the previous quarter.
- Inflation
The Fed’s preferred inflation gauge, the personal consumption expenditures (PCE) price index, climbed 0.2% in October, matching September’s increase. On a year-over-year basis, the PCE price index rose 2.3%, up from 2.1% in September.
Core inflation, which excludes volatile food and energy components, increased by 0.3% for the month and 2.8% annually, slightly higher than September’s 2.7% reading.
Labor Market
The labor market continues to show strength, with initial claims for state unemployment benefits falling to 213,000 for the week ended November 23, the lowest level since April. This decline in jobless claims suggests ongoing resilience in the job market.
Federal Reserve Outlook
The persistent inflation above the Fed’s 2% target and the prospect of higher tariffs on imported goods from the incoming Trump administration could limit the scope for interest rate cuts in 2025. While a third rate cut in December is still widely expected, Fed officials appear divided on the future path of monetary policy.
Consumer Behavior
Despite inflation concerns, consumer spending remains robust, particularly in healthcare, housing and utilities, financial services, and recreation. The holiday shopping season is anticipated to be pretty busy, with data from Adobe Analytics showing a 9.6% year-over-year increase in online spending for the first 24 days of November.
Economic Projections
The Atlanta Fed forecasts GDP growth at a 2.7% rate in the fourth quarter, indicating continued economic expansion. However, economists are closely monitoring the potential impact of President-elect Donald Trump’s proposed tariffs, which, if implemented, could increase core PCE inflation by 0.9%.
In conclusion, while the U.S. economy shows signs of strength, persistent inflation and potential policy changes under the incoming administration present uncertainties for future economic growth and monetary policy decisions.