US Economic Output Reaches Highest Level in Nearly Three Years

S&P Global’s latest data shows that US economic activity closed 2024 on a high note, with economic output reaching levels not seen in nearly three years.

US Composite PMI Surges in December

The flash US composite PMI, which measures activity across both services and manufacturing sectors, rose to 56.6 in December, up from 54.9 in November. This exceeded economists’ expectations of 55.1.

The services sector spearheaded the growth, with the services PMI hitting 58.5, its highest reading in 38 months. Conversely, the manufacturing PMI dropped to 48.3, marking a three-month low, signaling ongoing struggles in the manufacturing sector.

Strong GDP Growth Projections

Chris Williamson, chief business economist at S&P Global Market Intelligence, stated that the December data indicates the US economy is growing at an annualized rate of just over 3%. This aligns with projections from the Atlanta Fed’s GDP Now tool, which forecasts 3.3% growth for the fourth quarter. Goldman Sachs economists predict slightly slower growth, at 2.4%.

Services Lead Growth, Manufacturing Lags

Williamson highlighted the sharp divergence between the services and manufacturing sectors.

• Services Sector: Output is growing at its fastest pace since the post-COVID reopening in 2021.
• Manufacturing Sector: Output is contracting at an increased rate due to weak export demand and concerns over tariffs and inflation.

“December saw raw material prices spike sharply higher due to supplier-led price rises and increased shipping costs, reflecting busier supply chains ahead of expected protectionist policies in the new year,” Williamson added.

Business Confidence Rises Post-Trump Election

Since Donald Trump’s election victory, business sentiment has surged, reaching its highest level in two and a half years. However, concerns over potential tariffs and inflation stemming from higher import costs have tempered optimism, particularly in the manufacturing sector.

Wall Street Optimism for 2025

Continued economic growth has reinforced Wall Street’s bullish outlook for 2025. Investors anticipate that Wednesday’s Federal Reserve meeting will offer insights into the central bank’s future plans, including the “dot plot” that maps policymakers’ expectations for interest rates, inflation, GDP, and unemployment.

Federal Reserve Outlook

Deutsche Bank chief US economist Matthew Luzzetti expects the Fed to revise its 2025 projections to reflect stronger growth momentum, easing financial conditions, and reduced unemployment. Luzzetti predicts the Fed will lower rates by 75 basis points next year, slightly less than previously anticipated.