By Steve Dinnen
As we roll into a new year and a new government, we might take a little time to assess the state of our economy. It seems to be in very solid shape, both at the state and national levels.
In a recent address to the Financial Planning Association of Iowa, Principal Financial Group CFA Bryan Davis highlighted some key points.
• Inflation has improved significantly but in a bumpy fashion, and the progress has stalled a bit. When you compare inflation today to where it was before the pandemic, most of the residual inflation stemmed simply from fees off of higher stock market AUM (assets under management).
• The labor market has balanced and is still solid, but the headline jobs data overstates its strength.
• Consumer spending remains strong and is driving exceptional U.S. growth.
The outcome of the election introduces a significant amount of uncertainty on inflation and growth. On balance, the results of the election could increase year-over-year inflation by 0.3% to 0.4%, while the effects on growth are mixed.
Fixed income yields are very attractive with the backup in rates, especially given frothy stock valuations.
Adding to the comments of Davis comes a global economic outlook, courtesy of Deloitte. Here, analyst Michael Wolf notes that the United States continues to outperform its peers. Real gross domestic product growth for 2024 is expected to finish around 2.8%, a solid number for a developed country.
Despite elevated interest rates, consumer spending has grown strongly. A relatively tight labor market, stronger inflation-adjusted wage growth, and a sharp increase in immigration have supported aggregate consumer spending. Business investment has also held up relatively well.
Federal economic policy is the largest uncertainty in the U.S. economic outlook. Deloitte assumes that many of the policies proposed during the presidential campaign won’t be implemented in their maximalist forms. For example, they expect only a gradual increase in tariffs on select trading partners. (These days you can watch this reel itself out, then back in, then maybe back out again, in real time.)
This combination of policies should allow real GDP to grow by 2.4% in 2025 before slowing to 1.7% in 2026. Jumping into this fray is newly named U.S. Treasury Secretary Scott Bessent. He brings with him his “3-3-3” economic plan, which involves reducing the federal budget deficit to 3%, achieving 3% GDP and producing 3 million more barrels of oil a day by the end of Trump’s second term.
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