Five trends will have an effect on the US economy and money markets in 2025, including employment, consumption, growth, inflation and interest rates. Although 2024 was a strong year, there are reasons to be positive about the outlook for 2025.
There were mixed dynamics for the U.S. labor market in 2024. Nonfarm payroll gains slowed in 2024 while the unemployment rate increased compared to 2023. However, the current state of the labor market is more positive than these two data points indicate.
Although net payroll growth slowed in 2024, it has not contracted since December 2020. Furthermore, even though the unemployment rate surged in 2024, it remained low at 4. 2% in November 2024.
Beyond payroll and the unemployment rate, weekly jobless claims for December 2024 have been very low so far, and there were more than 7. 7 million open jobs in October 2024, which would have been a record before the COVID-19 pandemic.
While payrolls may still slow in 2025, significant contractions in monthly payrolls seem unlikely, given the higher number of job openings in the U. S. economy and other positive insights from the hard-work market that will provide tailwinds for next year.
In short, the U.S. labor market remains on solid footing heading into 2025.
With a strong job market and emerging wages, admission into the US has been strong. It is also likely to remain positive in 2025. Recent spending data has been positive, while customer credit data shows that customers and families are doing well.
In November 2024, retail sales increased 4. 1% year over year, according to the US Census Bureau. Additionally, admission spending increased 5. 5% year over year in November 2024, according to the U. S. Bureau of Economic Analysis.
Strong spending across unleveraged consumers supported the expansion in 2024, and this bodes well for 2025 as well.
The New York Federal Reserve’s third-quarter 2024 report on U. S. household debt and credit showed a record high point of U. S. customer debt of $17. 94 trillion. However, the report also highlighted low defaults, representing 3. 5% of total customer debt. Before the third quarter of 2020, 3. 5% of antisocial customer debt would have been an all-time low.
The overall debt-to-income ratio of American consumers was at a low of 82% in the third quarter of 2024. Before the COVID-19 pandemic, it would have been the lowest debt-to-income ratio since 2002.
The United States is also in a particularly strong position when it comes to credit debt. Since the first quarter of 2020, approximately 68% of the budget for loan origination went to other people with more than 760 FICO scores, the credit score range.
The loan insight is especially revealing because it highlights that Americans with credit quality in Hitale borrowed at some of the lowest interest rates in Hitale. Coupled with low debt defaults and a strong job market, the strong income story looks set to continue.
The genuine expansion of US gross domestic product will most likely accelerate between 2024 and 2023, according to forecasts from the International Monetary Fund. Additionally, by 2024, the US GDP expansion rate is expected to record the fastest expansion rate of all complex economies for the second consecutive year, according to Prestige Economics.
Looking ahead to 2025, the outlook for U. S. GDP remains positive and the rate of expansion is about to slow.
Recent data on US expansion supports a positive outlook, as real GDP accelerated in the third quarter of 2024 to an upwardly revised rate of 3. 1%, following a strong expansion rate of 3. 0% in the second quarter of 2024. In the short term, the outlook is positive and the latest GDPNow data from the Atlanta Fed indicates that GDP in the fourth quarter of 2024 is expected to be 3. 1%, according to the data that will be available until December. 20.
About 69% of GDP in the third quarter of 2024 was spent on consumption. That’s why record nonfarm wages, higher job openings, and low customer delinquency rates have supported expansion in 2024, and bode well for U. S. customer expansion in 2025. .
Year-on-year consumer inflation rates cooled in 2024 from 2023. Looking ahead to 2025, consumer inflationary pressures are likely to ease further based on modest month-on-month inflation in recent reports.
Current customer inflation rates are well above the Federal Reserve’s 2% target, with the headline customer value index at 2. 7%, core CPI at 3. 3%, inflation General PCE at 2. 4% and core PCE at 2. 8%. However, according to Prestige Economics, year-on-year customer inflation rates are expected to decline in the second quarter of 2025 due to base effects. Furthermore, the annual average velocity of peak measures of consumer inflation will likely be lower in 2025 than in 2024.
Interest rates began to fall in 2024 and additional cuts are expected in 2025, according to the Federal Open Market Committee’s December projections.
Following the December Fed interest rate cut and FOMC projections, market expectations reflect no interest rate cut in January. However, FOMC projections still reflect two likely 0.25% interest rate cuts in 2025.
The FOMC’s projections differ particularly from reality, and the Federal Reserve would possibly have reason to cut interest rates by more than 0. 5% in 2025.
Financial professionals like to say, “the trend is your friend,” even if a trend is rarely very positive. Fortunately, in 2024, the trends have been positive, adding a net increase in payroll, higher consumption, positive growth and a slowdown. inflation and decrease in interest rates. The outlook for 2025 includes many of the same elements and tailwinds that were provided in early 2024.
Of course, there are problematic dangers for prospects, to which are added political and geopolitical dangers. However, those dangers also weigh heavily on the outlook for 2024, which is expected to close a year for the economy and stock markets.
Continued strength in the labor market deserves to be absorbed and expanded in 2025, while an easing of interest rates would likely open the door to additional interest rate cuts via the Federal Reserve.
Markets have discounted the FOMC’s projections of just two 0. 25% Fed rate cuts in 2025, and any additional cuts would likely weigh on the dollar and bond yields, while supporting stock prices, bonds and trading commodities.
Despite the FOMC’s most recent projections, Prestige Economics expects at least three rate cuts in 2025, with the next interest rate cut coming no later than the Fed’s May 2025 meeting.
What is your outlook for the economy, markets, and the Federal Reserve for 2025?
Let me know what you make in the comments below.
Also, be sure to subscribe to my YouTube channel and to Prestige Economics and The Futurist Institute for more content on economic outlook, trends, money markets, inflation, employment, and Federal Reserve policy.
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