What Will the Economy Look Like in 2025?

Admittedly, our outlook for the U.S. economy today is less optimistic than it was at the start of the year.  Uncertainty has weighed on consumer spending, and messaging from corporate leaders has implied a more cautious approach to capital deployment going forward. That said, we believe it is too early to sound the alarm, especially as the bigger picture as it pertains to the economy is yet to show signs of meaningful cracks. Zooming out an be helpful at this juncture.

• The employment picture has not changed materially, as evidenced by the fact that the unemployment rate currently rests well below the long-term average. Although a modest tick up to 4.1% was seen in February, the measure has bounced between 4.0%-4.2% since May of 2024. It is entirely possible (perhaps even likely) that we see unemployment move higher through the remainder of the year, but we have a ways to go before we even get back to an “average” level.
• New jobs continue to be added to the U.S. economy, the average rate of which over the last 3 months has outpaced the rate of hiring in 2024. Despite softer job additions to start the year, the U.S. economy is still adding new jobs, not cutting existing labor in aggregate.
• Wage gains continue to outpace inflation as measured by Average Hourly Earnings and the Consumer Price Index. Consistent year-over-year wage growth, currently at 4.0%, remaining above headline inflation of 2.8% implies that domestic consumers remain in position to absorb any potential price increases.
• U.S. household debt remains under control as measured by debt service payments relative to total disposable income for U.S. households. Although debt service payments for individuals in the U.S. continue to rise, when viewed relative to disposable personal income, debt service costs remain below the pre-pandemic trend.