By Matt Grossman

Backing impressive U.S. output growth in 2024 were American consumers who just wouldn't quit.

Spending on personal consumption rose at a 4.2% annualized pace between October and December, the fastest quarterly growth rate since the beginning of 2023. That capped a year of strong outlays by American households, helping the economy weather the tricky transition out of the postpandemic surge of inflation.

Overall in 2024, both personal spending and the broader economy expanded by 2.8%, according to data published by the Commerce Department on Thursday. The growth in individual shopping spanned the goods and services sectors and came despite a softer labor market and still-elevated inflation, a combination that, in many analysts' fears, had left the economy vulnerable.

But consumers defied all expectations.

"I've been surprised, because I have been anticipating that consumer spending would slow to a degree," said Stephen Stanley, chief U.S. economist at Santander. Cooler wage gains and a falling savings rate suggest that the strong fourth-quarter expansion might not be sustainable, but the fourth quarter hinted that consumption will keep fueling strong economic growth for at least a bit longer, Stanley said.

At the end of last year, spending on durable goods led the way, climbing at a 12.1% annualized rate in the fourth quarter. In all likelihood, that partly reflects elevated demand for replacement vehicles after the fall's difficult hurricane season, said Bernard Yaros, chief U.S. economist at Oxford Economics.

Consumers also probably ramped up spending over concerns that Trump administration tariffs will raise prices later this year, he said.

Those one-time factors could fade, but a placid backdrop of easing inflation, solid wage gains and a stabilizing labor market will also likely limit consumer weakness in 2025. "Household balance sheets in the aggregate are in good shape," Yaros said.

After adjusting for inflation, the American economy has grown at nearly a 3% compound annual rate since the start of 2022, a bargain few economists would have rejected as inflation crept higher after the pandemic. Central banks often face a tough time getting accelerating price increases back under control without tipping the economy into a recession.

In surveys over 2022 and 2023, economists increasingly told The Wall Street Journal they perceived a rising recession risk. A key concern was that generous pandemic aid from the government had propped up household finances temporarily, with families likely to tighten their belts as the extra cash dwindled.

Instead, a strong labor market has helped support income growth, helping wages catch up to inflation for many workers. The U.S. has also logged some of the world's biggest productivity improvements, which help businesses pay workers better without having to increase the prices they charge.

Some details of the fourth-quarter-growth figures will take more time to parse. After data earlier this week showed a larger U.S. trade deficit for goods in December, many economists expected that greater imports would translate into a weaker growth contribution from trade. Imports are subtracted from exports in the gross-domestic-product calculation.

Instead, trade contributions pushed GDP higher, not lower, in the fourth quarter, a surprising result, economists at Citi wrote in a note to clients. More detailed December trade data scheduled for publication next week will clarify the discrepancy, the Citi team said.

Write to Matt Grossman at matt.grossman@wsj.com

(END) Dow Jones Newswires

January 30, 2025 14:14 ET (19:14 GMT)

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