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 hasn’t contracted since December 2020. Moreover, despite the increase in the unemployment rate in 2024, it remained low at 4. 2% in November 2024.
Beyond payrolls 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 an all-time high before the COVID-19 pandemic.
Although payrolls may still slow in 2025, significant contractions in monthly payrolls appear unlikely, given the increased number of job openings in the US economy and other positive insights from the tough labor market that will provide tailwinds. for next year.
In short, the US labor market will continue to function until 2025.
With a strong hard-working market and emerging wages, entry into the U. S. has been strong. It is also very likely that it will 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 rose 4. 1% year-over-year, according to the U. S. Census Bureau. In addition, admission spending rose 5. 5% year-over-year in November 2024, according to the U. S. Bureau of Economic Analysis. U. S.
Solid spending through deleveraged consumers supported the expansion in 2024, and this bodes well for 2025 as well.
The New York Fed’s Q3 2024 report for U.S. Household Debt and Credit showed a record level of U.S. consumer debt at $17.94 trillion. However, the report also reflected low debt delinquencies at only 3.5% of total consumer debt. Prior to Q3 2020, 3.5% of consumer debt delinquent would have been the all-time record 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, about 68% of the loan origination budget has been awarded to Americans with more than 760 FICO scores, the credit score range.
The mortgage knowledge is particularly revealing because it highlights that Americans with the quality of credit in Hitale have borrowed at some of the lowest interest rates in Hitale. Combined with low delinquencies and a strong job market, the strong admissions story looks set to continue.
U.S. real gross domestic product growth likely accelerated in 2024 compared to 2023, according to forecasts from the International Monetary Fund. Plus, for 2024, the U.S. GDP growth rate is likely to post the fastest growth rate of any advanced economy for a second consecutive year, according to Prestige Economics.
Looking ahead to 2025, the outlook for US GDP remains positive and the rate of expansion is poised 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 most recent GDPNow report from Atlanta Fed data indicates that Q4 2024 GDP is expected to be 3. 1%, according to the Data available through December 20.
Around 69% of Q3 2024 GDP was consumption, which is why record-high nonfarm payrolls, high numbers of open jobs, and low consumer debt delinquencies supported growth in 2024—and why they bode well for the U.S. growth outlook in 2025.
Year-over-year consumer inflation rates slowed in 2024 compared to 2023. Looking ahead to 2025, consumer inflation pressures are expected to decline further due to the modest monthly inflation reported 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 more rate cuts will follow in 2025, according to December projections from the Federal Open Market Committee.
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 isn’t very positive. Fortunately, in 2024, trends have been generally positive, coupled with a net increase in payrolls, stable consumption, positive growth, a slowdown in inflation, and a fall in interest rates. The outlook for 2025 includes many of the same factors and tailwinds that were on offer at the beginning of 2024.
Of course, the outlook entails problematic dangers, to which are added political and geopolitical dangers. However, those dangers also weighed heavily on the outlook for 2024, which was expected to cap a strong 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 a further interest rate cut by the Federal Reserve.
Markets have priced in FOMC projections of only two 0.25% Fed rate cuts in 2025, and any additional cuts would likely weigh on the dollar and bond yields, while supporting equity prices, bond prices, and industrial commodity prices.
Despite the latest FOMC projections, Prestige Economics expects at least three rate cuts in 2025, with the next interest rate cut coming at or before the May 2025 Fed meeting.
What is your outlook for the economy, markets, and the Federal Reserve through 2025?
Let me know what you think 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 the economic outlook, trends, money markets, inflation, employment, and Fed policy.
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