As 2024 winds down, the U.S. economy appears to be on solid footing, marked by robust employment, falling interest rates, easing inflation, and financial gains in both the stock market and real estate sectors.
Let’s explore some significant trends that could extend into 2025 and possibly beyond:
Positive Economic Forecast from Banking Experts
Current projections indicate that a recession is unlikely for the remainder of 2024 and perhaps even longer. According to a recent report by the American Bankers Association’s economic advisory panel, which includes 15 leading bank economists, the economy is expected to expand by 2% in the latter half of 2024 and into 2025. These experts have maintained their previous estimate of a 30% risk of recession, first issued in March.
The panel also highlighted potential challenges such as a softening job market, characterized by fewer job openings and a slight increase in layoffs. The national unemployment rate has climbed from 3.4% at the start of 2023 to 4.2% in August 2024, with an anticipated rise to 4.4% by early 2025. Inflation is expected to continue its downward trend, reaching the Federal Reserve’s target of 2% by the second quarter of 2025. Additionally, they foresee ongoing cuts in interest rates throughout 2025.
For homeowners, the forecast suggests a slowdown in property value increases, with home price appreciation predicted to decrease from 6.8% in the second quarter of this year to 3.1% by the fourth quarter of 2025. This slowdown will likely be accompanied by a gradual reduction in mortgage rates, according to the economists.
Wealth Gains Exacerbate Economic Disparities
The past year has seen a significant increase in personal wealth, yet the benefits have not been evenly distributed, exacerbating the economic divide. David Kelly, Chief Global Strategist at J.P. Morgan Asset Management, pointed out in a recent analysis that the overall net worth of American households has surged to a record $157 trillion, averaging $446,000 per person, an increase of 47% or $50 trillion over the past five years. The rise in stock prices, driven by higher corporate profits due to favorable tax conditions, lower inflation and interest rates, and weakened union influence, has significantly contributed to this wealth accumulation.
While the stock market has been the primary source of wealth increase, the nation’s 87 million homeowners have seen their home equity rise to an average of $400,000 from $240,000 five years earlier.
These substantial wealth gains support ongoing consumer spending, help stabilize the economy, and reduce concerns about credit issues and retirement security for many. However, not everyone has enjoyed these benefits; renters have missed out on the home price increases, and the national debt has grown significantly, which will likely result in tax implications. Furthermore, the robust stock market has attracted foreign investment, bolstering the U.S. dollar and contributing to a persistent trade deficit that could undermine domestic manufacturing jobs.
Kelly warns that if the trend of growing inequality continues, it could fuel populist politics and lead to economically damaging decisions.
Corporate Strategies Signal Increased Cost-Cutting
Although jobs have been plentiful and workplace conditions favorable in recent years, employees may face tougher times ahead. A survey of 182 human resources executives by Challenger, Gray & Christmas revealed that about one-third of companies are considering or have already implemented layoffs. Additionally, some firms are reversing remote work policies, requiring employees to return to office settings. Cost-cutting measures, including reduced travel budgets, have been prevalent but have not increased significantly over the past year.
Concerns about “quiet quitting,” where employees become less engaged or do minimal work without formally resigning, were mentioned by about one-third of the executives surveyed. However, they reported no concrete evidence of declining productivity. Despite these concerns, the survey highlighted a continued commitment to flexible work arrangements, with 54% of companies still offering hybrid or fully remote options.
Stock Market Faces Historically Challenging Month
Despite recent positive momentum, the stock market traditionally struggles in October, particularly during presidential election years. Jeffrey Hirsch, editor of the “Stock Trader’s Almanac” 2024 edition, noted that this month is often feared on Wall Street due to historical downturns in years such as 1929, 1987, 1997, and 2008. Although October has a reputation for downturns, the actual outcomes have been mixed, with the S&P 500 index experiencing gains as often as losses in the 18 election-year Octobers since 1950, averaging a slight loss of 0.9%.
Interestingly, October has also marked the end of bear markets and the start of rallies in several post-World War II instances, suggesting that any downturns this month could potentially set the stage for subsequent recoveries.
Contact the author at russ.wiles@arizonarepublic.com.
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Passionate about analyzing economic markets, Alice M. Carter joined THE NORTHERN FORUM with a mission: to make financial concepts accessible to everyone. With over 10 years of experience in economic journalism, she specializes in global economic trends and US financial policies. She firmly believes that a better understanding of the economy is the key to a more informed future.
