The US economy concluded 2024 with its strongest performance in nearly three years, according to recent data from S&P Global. This surge was primarily fueled by robust activity in the services sector, offsetting a decline in manufacturing.
The S&P Global flash US composite PMI, a comprehensive measure of activity across both services and manufacturing, reached 56.6 in December, surpassing November’s 54.9 and exceeding economist expectations of 55.1. This positive momentum indicates a significant acceleration in overall economic growth.
The services sector spearheaded this growth, with the services PMI business activity index reaching a remarkable 58.5, its highest point in 38 months. This signifies a substantial rebound in service-related businesses and underscores the sector’s crucial role in the overall economic recovery. Conversely, the manufacturing PMI dipped to 48.3 in December, a three-month low, highlighting the persistent challenges faced by the sector.
Chris Williamson, chief business economist at S&P Global Market Intelligence, interpreted the data as indicative of the US economy expanding at its fastest rate in nearly three years, “consistent with GDP rising at an annualized rate of just over 3% in December.” He attributed this robust growth to the booming services economy, experiencing its sharpest output increase since the post-pandemic reopening in 2021.
Williamson’s optimistic GDP growth projection aligns with other forecasts. The Atlanta Fed’s GDPNow tool, which utilizes real-time data, currently estimates a 3.3% annualized growth rate for Q4 2024. Goldman Sachs economists offer a slightly more conservative projection of 2.4%.
However, Williamson emphasized the uneven nature of this growth, with the services sector significantly outpacing manufacturing. The manufacturing sector faces headwinds from weak export demand, contributing to its declining output. Despite heightened business confidence following the recent election, concerns linger regarding potential tariffs and their inflationary impact due to increased import costs. December witnessed a sharp rise in raw material prices, driven by supplier-led increases and higher shipping costs, reflecting supply chain pressures anticipating protectionist measures.
Sustained US economic growth remains a central theme among Wall Street strategists, who anticipate a continued stock market rally in 2025. The Federal Reserve’s upcoming Summary of Economic Projections (SEP) and “dot plot” will offer crucial insights into the central bank’s assessment of the economy and its implications for future interest rate policy. These projections will encompass inflation, GDP, and unemployment forecasts for the end of 2025, providing valuable context for investors.
Matthew Luzzetti, chief US economist at Deutsche Bank, anticipates that the stronger growth momentum and easing financial conditions will lead to upward revisions in 2025 real GDP growth and inflation forecasts, coupled with a reduction in unemployment projections. Consequently, he expects the Fed to implement 75 basis points of rate cuts next year, slightly less than the previously anticipated 100 basis points.
This robust economic performance is widely expected to propel the stock market in the coming year.
