The U.S. economy picked up even before Trump took office. Could it be much better?

Jeffrey Bartash

GDP in the fourth quarter will demonstrate the dynamics of economic development after Trump’s return to the White House

Donald Trump has promised to boost the US economy, but it has already been on a roll for more than two years and is likely to end 2024 with another burst of strong growth.

Gross domestic product, the official measure of the economy, may have grown by an annualized 3% in the fourth quarter, according to the Atlanta Federal Reserve’s GDPNow data. The GDP report will be released next Thursday.

Other DJIA SPX Wall Street firms are forecasting a 2% to 3% rise in the fourth quarter, fueled by a busy holiday shopping season. Consumer spending was stronger than expected in the last three months of last year.

If these numbers are accurate, GDP growth for the full year of 2024 would be between 2.4% and 2.7%.

How good is that?

The economy grew by about 2.4% per year in the decade before the pandemic hit in 2020. So the figures would be about the same.

What makes it even better is that the economy should not have grown so fast in the post-pandemic period.

Until recently, Wall Street DJIA SPX economists and senior Federal Reserve officials believed annual US growth would be less than 2%.

They believed that anything faster than that would overheat the economy and fuel inflation in the long run.

It’s too early to say whether the U.S. has reached a plateau of higher growth, but economists point to two unexpected trends: population growth and surprising gains in productivity. GDP growth in the long term is largely determined by these two factors.

The population and the size of the labor force have increased due to the recovery of legal immigration and the flow of unauthorized migrants to the US

Productivity, the true elixir of economic growth, also rose much faster than expected. This is an even more important factor.

Economists attribute this to greater use of technologies such as artificial intelligence and other measures that help workers produce more goods and services in the same amount of time.

However, it is far from clear that productivity will continue its recent high momentum after years of low performance.

The economy is also not without certain problems.

Let’s take inflation. Prices are still rising faster than pre-pandemic lows, and the cost of most goods and services is 20-30% higher than when Trump was last in office. Americans’ disappointment spilled over into the last election and cost the Democrats the White House.

Hiring has also slowed sharply since last year, and while unemployment is very low, people who lose their jobs are taking much longer to find another.

High interest rates, for their part, have led to lower sales of homes and new vehicles and weighed on business investment.

Interest rates may also remain relatively high if the economy continues to outpace the economy — assuming that fast growth can keep inflation high.

“The resilience of the US economy supports our view that the Federal Reserve will take a cautious approach to rate cuts and ultimately leave rates unchanged in 2025,” BNP Paribas economists said.

Trump’s own economic proposals, meanwhile, carry both danger and promise as his second term begins.

He promised to cut regulations, lower taxes and make energy cheaper to please businessmen.

But they also fear that his plans to sharply raise tariffs and deport millions of unauthorized immigrants will raise the cost of materials and labor and fuel inflation.

And yet the general tone is optimistic. And early studies of how the economy is doing at the start of Trump’s presidency seemed to support that view.

“U.S. businesses are entering 2025 in high spirits, hoping that the new administration will help spur economic growth,” said Chris Williamson, chief business economist at S&P Global.

The rest of the world noticed it too.

Last week, the International Monetary Fund raised its forecast for US growth in 2025 to 2.7% from 2.2%, while downgrading most other major economies.

In other words, the US economy is once again leading the world pack.

– Jeffrey Bartash

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  01-25-25 0715ET
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