US economy surprises again in 2024 despite Fed moves, election drama

Over the past few years, the US economy has surprised everyone by staying strong, even though many people expected it to slow down. 2024 was no different. Even with the uncertainty of a presidential election, high interest rates, and a weaker job market, the economy still grew steadily. According to the International Monetary Fund, the US is expected to be the top performer among the world's seven largest economies.

However, the economy wasn’t perfect. Inflation (the rate at which prices rise) didn't drop as quickly as expected, making the Federal Reserve (the central bank) keep interest rates high for longer. The housing and manufacturing sectors struggled because of these high borrowing costs. Also, people with credit card debt, mortgages, and other loans began to face higher levels of late payments.

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Here’s a closer look at how the US economy did in 2024:

Consumers Supported the Economy

The economy did better than expected mainly because of American consumers. Even though fewer people were getting hired, wages (the money people earn) grew faster than inflation, and people’s wealth reached new records. This helped people keep spending, which supported the economy. According to Bloomberg Economics, household spending grew by 2.8% in 2024, which was better than expected.

But Some Problems Began to Show

Despite consumers' strength, some signs of trouble appeared. Many people had used up their savings from the pandemic and were saving less money. Wealthier people, whose homes and stock investments had increased in value, were spending more. On the other hand, many lower-income people had to rely more on credit cards and loans to keep spending, and some started showing signs of financial trouble, like missing payments on their debts.

Trouble in the Job Market

The job market, which was a key factor in keeping consumers spending, began to show signs of stress. Hiring slowed down throughout the year, and the unemployment rate went up. This raised concerns that the economy might be heading for a recession. Job openings also dropped, and it became harder for people to find new jobs. In response, the Federal Reserve started to lower interest rates in September to help the economy, but they’ve become more hopeful in recent months because the unemployment rate has stabilized, and wages continue to rise at a steady 4%, which is helping households.

Inflation Progress Slowed Down

The Federal Reserve has a goal to keep inflation at around 2%, but it has been difficult to reach that target. After a big drop in inflation in 2023 and some progress in the first half of 2024, inflation slowed down in the second half of the year. The Fed’s favourite measure of inflation (the personal consumption expenditures price index) rose by 2.8% in November from the same time last year.

Even though the Federal Reserve lowered interest rates by one percentage point in 2024 to ease the pressure on the economy, Fed Chair Jerome Powell said they need to see more progress on inflation before making further rate cuts in 2025.

High Interest Rates Hurt the Housing Market

The housing market continued to struggle because of high borrowing costs. Mortgage rates (the interest rate people pay on home loans) fell to a two-year low in September but then climbed back to around 7% because people expected the Federal Reserve to keep rates high. To try and attract buyers, builders offered incentives like mortgage buydowns (where they help lower mortgage payments) and occasional price cuts. While home sales did stabilize, they remained lower than before the pandemic. Sales were still below levels seen in 2023, which was already the worst year for housing sales since 1995.

The Manufacturing Sector Struggled Too

The manufacturing sector (companies that make goods like cars and electronics) also faced problems because of high interest rates. Companies struggled to get loans for new investments, and the demand for products from other countries was weak. Many companies had to cut jobs to save money, and durable goods manufacturers (those that make products meant to last, like cars and appliances) reduced their workforce throughout most of the year.

In 2025, President-elect Donald Trump's plans to boost domestic manufacturing might affect the sector. He has promised to bring back more jobs by lowering taxes and imposing tariffs (taxes on imports). However, some economists think that these moves could increase inflation, create challenges in the labour market, and cause problems with supply chains. As a result, manufacturers might not invest much in new projects next year due to this uncertainty.

Overall, while the US economy showed resilience in 2024, it faced several challenges that still need attention. Consumers kept things going, but some financial cracks began to appear, and the job market, housing, and manufacturing sectors struggled. The Federal Reserve’s approach to interest rates will continue to shape how the economy performs in the coming months.

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