2024 Economic Performance Exceeds Previous Expectations; Policy Implementation Will Impact the 2025 Economic Outlook.

The U.S. economy has shown remarkable resilience, defying earlier forecasts of stagnation or recession. Revised projections for 2025 suggest sustained growth, driven by robust consumer spending, legislative incentives for business investment, and significant policy shifts under the incoming Trump administration. However, growing national debt and contentious fiscal policy debates could pose challenges ahead. Here are the key insights shaping the economic landscape:

2025 Economic Outlook:

• Economic growth is forecasted at 2.6% for 2025, up from earlier
  projections of 1.7%.
• Growth is expected to remain near potential, increasing to 2.7% by 2026 as fiscal policies take hold.

2024 Economic Performance:

• Fourth-quarter growth reached 2.5%, surpassing mid-year estimates of
  1.7%.
• Consumer spending remained strong, fueled by wage gains, easing
  inflation, and higher real disposable income.

Policy Influences:

The Trump administration’s proposed tax cuts, tariffs, and restrictive
immigration policies are expected to have mixed effects:

• Tax cuts may boost disposable income and corporate investment.
• Tariffs could act as a tax on businesses and consumers, potentially
  slowing growth.
• Immigration restrictions may reduce labor supply, hindering
  productivity and consumer spending.

Federal Reserve and Inflation:

• Inflationary pressures from new fiscal and trade policies could prompt the Federal Reserve to maintain higher interest rates for an extended period.

Debt and Deficit Challenges:

• The federal budget deficit for 2024 was $1.8 trillion, contributing to a
  national debt of $35 trillion (123% of GDP).
• The debt limit suspension, enacted in 2023, expires on January 1, 2025,
  raising concerns about potential defaults if Congress fails to act.
• The Treasury Department projects a mid-June 2025 deadline before
  exhausting alternative funding options.

Legislative Impacts on Business Investment:

• Major legislation, including the Bipartisan Infrastructure Law, CHIPS and Science Act, and Inflation Reduction Act, has spurred manufacturing and construction spending.
• Revisions to national accounts revealed personal incomes outpacing
  spending in 2024, supporting continued growth.

Economic Resilience:

• Slower job growth is reflected in higher productivity and fewer job
  openings rather than layoffs.
• Consumers remained financially stable despite rising loan delinquencies and dwindling savings.

Legislative Concerns:

• Narrow Republican control in Congress complicates negotiations to
  address the debt ceiling.
• The U.S. has historically avoided default, but contentious debates could create uncertainty.

Source Credit:
This analysis is based on insights from CoStar Economy, authored by Christine Cooper, Managing Director and Chief U.S. Economist at CoStar Group.